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95th Congress 
2d Session 



Report of the President to the Congress 

together with ^^ ^ ".:!*! ■>-_ 

Assessment of the Report by the Congressional Research Ser^fe^ 
Library of Congress f/S/ >fe 








Printed for the use of the Committee on International Relations 



For sale by the Superintendent of Documents, U.S. Government Printing Office 
Washington, D.C. 20402 


CLEMENT J. ZABLOCKI, Wisconsin, Chairman 

L. H. FOUNTAIN, North CaroUna 
CHARLES C. DIGGS, Jr., Michigan 
ROBERT N. G. NLX, Pennsylvania 
DONALD M. ERASER, Minnesota 
, LEE H. HAMILTON, Indiana 
GUS YATRON, Pennsylvania 
LEO J. RYAN, Cahfornia i 
HELEN S. ME YNER, New Jersey 
DON BONKER, Washington 
GERRY E. STUDDS, Massachusetts 
WYCHE FOWLER, Jr., Georgia 

JOHN H. BUCHANAN, Jr., Alabama 
LARRY WINN, Jr., Kansas 
WILLIAM F. GOODLING, Pennsylvania 

John J. Brady, Jr., Chief of Staff 

Subcommittee on International Security and Scientific Affairs 

CLEMENT J. ZABLOCKI, Wisconsin, Chairman 


GERRY E. STUDDS, Massachusetts 

Ivo J. Spalatin, Subcommittee Staff Director 

William H. Fite, Minority Staff Consultant 

Forrest R. Frank, Subcommittee Staff Attociate 

La Verne Still, Staff A$sistant 

> Deceased. 



In August 1977, Congress enacted the International Security As- 
sistance Act of 1977, Public Law 95-92, requiring the President under 
section 24 to conduct "a comprehensive study of the pohcies and prac- 
tices of the U.S. Government with respect to the national security and 
miUtary impHcations of international transfers of technology in order 
to determine whether such policies and practices should be changed." 
While there were several factors which aroused congressional concern 
about the issue of technology transfer including Export Administration 
Act Amendments, the preparations for the U.N. Conference on Science 
and Technology for Development, General Accounting Office reports 
on East- West trade, and growing imbalances in U.S. trade, the com- 
mittee was particularly interested in the impact of defense equipment 
licensed and coproduction arrangements on the President's policy of 
conventional arms transfer restraint. 

During the spring of 1977 as the committee drafted the Interna- 
tional Security Assistance Act for 1977, much attention was focused on 
the various mechanisms by which U.S. arms transfers might be limited, 
consistent with the policy articulated by the Congress in the Inter- 
national Security Assistance and Arms Export Control Act of 1976. 
The President's declaration of conventional arms transfer policy of 
May 19, 1977, identified several specific measures which would be 
implemented in addition to a dollar ceiling on the volume of arms sales 
which would better control and restrain U.S. arms transfers. Among 
those controls were stringent limitations on the use of licensed and 
coproduction agreements. 

In the long run, U.S. Government efforts to stem the international 
proliferation of conventional armaments will not be successful unless 
other arms suppliers agree to multilateral restraints on arms produc- 
tion or transfers. At the same time, it is important that the United 
States make available under appropriate safeguards those products 
and technologies which can facilitate economic development through- 
out the developing nations of the world and promote our country's 
economic security. 

The dilemma posed by technology transfer in the narrow field of 
conventional arms transfer restraint is repeated in such fields as East- 
West trade and in our trade with other developed nations. We seek to 
trade goods, services, and technology in a manner that will promote 
economic growth and not jeopardize our Nation's military security. 

The study requirement posed in section 24 of the International 
Security Assistance Act of 1977 was framed with these dilemmas in 
mind. Based on the detailed response submitted by the President in 
compliance with sections 202(b) and 218 of the International Security 
Assistance and Arms Export Control Act of 1976 (Public Law 94- 
329) on arms transfer policy, the committee anticipated a detailed, 
comprehensive study on technology transfer policies and practices. 



Furthermore, the study requirements of the Export Administration 
Act Amendments of 1977 (Public Law 95-52) as well as additional 
studies conducted within the executive branch as part of National 
Security Council proceedings should have created a base from which 
detailed analysis, facts, and data could be presented to the Congress. 
The accompanying critique of the President's report prepared by the 
Congressional Research Service of the Library of Congress describes 
what it perceives to be, in my judgment, the deficiencies of the 
President's study. 

The problems of technology transfer will not be solved quickly. The 
following report of the President submitted in compliance mth section 
24 of the International Security Assistance Act of 1977 and critique 
of the President's report prepared by CRS illustrate the numerous 
complex relationships between teclinology transfer policy, military 
security, international trade, and economic development of interest 
to Congress. While the study may not adequately reflect the current 
state of the executive branch's understanding of these issues, it should 
be a useful document in helping shape the coming congressional dis- 
cussions on technology transfer-related legislation. 

The views presented in the President's report and the critique of it 
prepared by the Congressional Research Service are those of the 
respective authors and do not necessarily reflect the views of the 
Committee on International Relations or its members. 

Clement J. Zablocki, Chairmariy 
Committee on International Relations. 


The White Uovsb, August 21, 1978. 
To the Congress of the United States: 

I transmit herewith the report on international transfers of tech- 
nology required by section 24(c) of Public Law 95-92, the International 
Security Assistance Act of 1977. 

Jimmy Carter. 


Digitized by the Internet Archive 
in 2013 


Foreword iii 

Letter of Transmittal v 

Report of the President to the Congress Pursuant to Section 24 

of the International Security Assistance Act of 1977 1 

1. The nature of technology transfer 1 

2. The effect of technology transfer on U.S. technological superiority. 6 

3. The rationale for the transfer of technology from the United States 

to foreign countries 9 

4. The benefits and risks of transfers 14 

5. Trends in technology transfer by the United States and other 

countries 19 

6. The need for controls on transfer of technology 23 

7. The effectiveness of existing organizational arrangements in the 

executive branch in regulating technology transfers from the 
United States 29 

8. The adequacy of existing legislation and regulations with respect to 

transfers of technology from the United States 30 

9. The possibilities for international agreements with respect to trans- 

fer of technology 31 

Assessment of the Executive Response to Section 24 of the Inter- 
national Security Assistance Act of 1977 (prepared by the Con- 
gressional Research Service of the Library of Congress) 35 

Introduction 35 

A. The task set for the Executive study 36 

B. General compUance of Executive study to congressional mandate. 36 

1. Comprehensiveness 36 

2. Executive agency participation 37 

3. Military and national security distinctions 37 

4. Global transfers 37 

5. Means of technology transfer and their impact 38 

6. Recommendations for legislative actions 38 

C. Specific observations on individual questions 38 

1. The nature of technology transfer 38 

2. The effect of technology transfers on U.S. technological 

superiority 40 

3. The rationale for the transfer of technology from the United 

States to foreign countries 41 

4. The benefits and risks of technology transfer 43 

5. Trends in technology transfer 46 

6. The need for controls on the transfer of technology 47 

7. The effectiveness of existing organizational arrangements in 

the executive branch regulating technology transfers from 

the United States 49 

8. The adequacy of existing legislation and regulations with 

respect to transfers of technology from the United States- 50 

9. The possibilities of international agreements with respect 

to transfers of technologies 51 

D. General compliance with legislative requirements of the Export 

Administration Act as amended (Public Law 91-184) and of 
export administration amendments of 1977 (Pubhc Law 95-92) _ 52 

E. Concluding observations 

Appendix: CRS Contributing Staff 55 




1. The Nature of Technology Transfer 

1.1 Definitions. — ''Technology" and ''technology transfer" are var- 
iously defined depending on the context. "Technology" is essentially 
know-how — ways of designing, manufacturing, or utilizing things. This 
definition observes the distinction between science and technology al- 
though there are, of course, important interrelationships. In this 
regard, advanced technologies are frequently referred to as "science- 
based" technologies. The technologies of primary interest in this 
report are those having sionificant national security implications 
rather than, for example, agricultural, health, or educational technol- 
ogies. On the basis of this definition, "technology transfer" can be 
viewed as the act of conveying know-how from one country to another. 
The means of doing so may involve, illustratively, the export of tech- 
nical data, equipment, and processes. 

The effectiveness of technology transfer depends importantly not 
only on what is transferred and how but also on the capacity of the 
receiving country to absorb it and put it to work. It may be necessary 
to train personnel in the receiving country to operate the equipment 
and processes being transferred. Moreover, on the receiving end, the 
capacity to manage technolog}^ is a significant factor affecting the 
success of the transfer. Especially in the case of advanced technologies, 
it may be essential for managers in the receiving country to have an 
understanding of the rationale underlying the choices — reflected in the 
technology — of particular ways of doing things. 

"Technology transfer" is also frequently employed in a broader 
sense to refer to the export of products (end-items) embodying par- 
ticular technologies. Used in this way, the term generally does not 
connote the transfer of the capability to manufacture the product but 
only the product itself. This usage of the term is especially justified 
where the product embodies technology of a level exceeding that 
available in the receiving country. In addition, certain types of prod- 
ucts (for example, machinery and equipment) may reasonably be 
considered end-items from the standpoint of the producing country 
but can significantly augment the technology available to the receiving 
country. Although this report is primarily concerned with transfers of 
technology from the United States to other countries, it should be 
recognized that neither of the foregoing ways of viewing technology 
transfer should be considered a one-way street. The United States has 
benefited and continues to benefit from technology transfers from 
other countries to this country in both senses of the term used above. 



1.2 Types and conditions of international technology transfers of 
particular significance to U.S. national interests and military security. — 
A broad range of U.S. interests may be affected by technolog}^ transfers 
both in and out of the countr}^ These inchide : 

— The nature and strength of our domestic econom}^ and our posi- 
tion in international markets; 

— The character of our poHtical relationships; 

— The potential effectiveness of oiir military capabilities and those 
of our allies relative to those of potential adversaries ; 

— The stability of our relations with developing countries and of 
their relations with each other; 

— The character of global challenges (for example, environment, 
energy) confronting the United States as well as other countries 
and the effectiveness of response to these challenges. 

Economic, political, and militar}^ factors collectively affect our 
national security interests. From this standpoint, three cases of 
technolog}^ transfer should be distinguished: (1) Those to allies may be 
important to maintain the political strength and economic vitality 
of alliances and to insure that the most effective defensive capabilities 
are available to all alliance partners. (2) Those to possible adversaries 
may affect the texture of political and economic relationships but 
must also be considered from the standpoint of possible military im- 
plications. (3) Those to developing countries may also affect political, 
economic, and military aspects of our relations. 

From the standpoint of our national securit}^ interests, the types 
of transfers of special interest can be viewed in terms of the following 
principal characteristics : 

— Whether the transfer (export) involves weaj^ons or other defense 
articles or services, whether it has potential dual uses (both 
military and civil), or whether it is primarily civil. 

— Whether only products (end-items) are involved or whether 
varying degrees of know-how are involved. 

— ^Whether the receiving country is an ally, possible adversary, or 

— Whether the transfer involves nuclear technolog}' or only non- 
nuclear technology. 

This general typology is directly reflected in the conditions set by 
the United vStates to govern exports and in our export control pro- 
cedures. Commercial exports of all defense articles, services, and 
technical data are subject to licensing. Sales of major defense equip- 
ment of over $25 million to other than our princip;il allies must be 
handled through foreign military sales channels. Commimist countries 
(except Yugoslavia) are not eligible to receive such exports. Transfers 
to allies are vital to collective security and are essential for main- 
taining a qualitative oxh^Q over opposing forces. Transfers of conven- 
tional arms to countries aside from NATO members, Australia, New 
Zealand, and Japan are subject to the requirements of U.S. conventional 
arms transfer ])olicy, whicli aims at reducing the worldwide trade in 

Controls over the export of defense articles, services, and related 
te(;hnical data (whether to allies or others) are administered by the 
Department of State. Full records are maintained. Quarterly reports 
are made to the Congress of conunercial sales of defense equipment 
valued at $1 million or more. 


Export of other nonnuclear products and tcclmolofj^y considered 
to be of strategic significance — including dual-use items — is also 
subject to licensing. Exports to non-Communist countries are permitted 
either under general licenses which do not require case-by-case review 
or under validated licenses without interagency review. Exports to 
Communist countries of strategic commodities and of technical data 
which have not been made generally available to the ])ublic require 
specific review and approval and the issuance of a validated export 
license. If the data have been published, they may be transfen-ed under 
a general license. Approval of exports to such destinations involves the 
provision by the receiving country of an assurance that the end- 
use to be made of the export is peaceful in character. In some cases, 
ways of checking on the validity of the end-use assurances are sought. 
Control over this class of exports is administereed by the Department 
of Commerce. Data on licensing activity are available to governmental 
agencies participating in the review process. 

Since the Atomic Energy Act was first enacted, special controls have 
been imposed on the export of nuclear equipment and technology. On 
March 10, 1978, the Nuclear Non-Proliferation Act became law. 
Subsequently, new procedures have entered into force controlling 
the export of nuclear facilities, equipment, materials, and technology. 
Given the very recent nature of the legislation, it has not yet been 
possible to analyze the full impact of the new controls. These controls 
reflect, in particular, concerns about the proliferation of nuclear 
weapons. The conditions imposed are designed to provide safeguards 
against proliferation or other military use of nuclear materials or 

Depending on the specific materials and technology involved, these 
controls are administered b}^ the Department of Energy, the Nuclear 
Regulatory Commission, the Department of Commerce and the 
Department of State. Each of the foregoing control systems and the 
conditions they impose on technology transfer are based on authorizing 

The interagency subgroup on nuclear energy coordination of the 
NSC ad hoc group on nonproliferation reviews proposed exports. 
Data on licensing activity are available to the agencies of the execu- 
tive branch participating in the review. 

Since the United States is not the sole source of most technologies 
covered by these control systems, the effectiveness of controls depends 
on the cooperation of other suppliers. In the case of exports to Com- 
munist countries, COCOM (composed of NATO countries less Iceland 
plus Japan) provides the coordinating mechanism for controls on 
transfers to Communist countries. Data transfers by members of 
COCOM are available to the licensing authorities of participating 
countries. In general, other COCOM member countries place less 
emphasis on controlling technical data although they do control 
technology related to commodities on the COCOM list. Other efforts 
to establish common policies among suppliers include the development 
of common approaches by major suppliers of nuclear technology and 
equipment and efforts, now underway, to"! explore the feasibility of 
harmonizing policies among major suppliers of conventional arms. 

Considerable data respecting the various licensing activities de- 
scribed above are available to the Congress and the public. Various 
statistical series also reflect technology transfers. These include, for 

example, royalties and license fees, direct foreign investment, and 
patent statistics. The adequacy of such measures of technology trans- 
fer is considered elsewhere in this report. 

Given the extent and complexit}^ of the controls which have been 
established and the need for effort to improve their effectiveness, an 
ad hoc NSC technology transfer group has been established to 
coordinate implementation of planned improvements in the export 
control system. The group will include representatives of the major 
interested agencies. 

1.3 Types of transfer mechanisms. — The definitions of technology 
transfer presented in section 1.1 cover both the transfer of know-how 
and production capabilities and also the transfer of technology em- 
bodied in various products. The report (February 1976) of the Defense 
Science Board Task Force on Export of U.S. Technology identifies 
the following spectrum of technology transfer mechanisms (listed 
here roughl}^ in order of increasing effectiveness; that is, effectiveness in 
terms of placing the recipient in a position to use the teclmology on a 
more or less self-sustaining basis except possibly for spare parts) : 

— Low effectiveness. — Trade exhibits, commercial literature, undocu- 
mented proposals, sale of products without maintenance and 
operations data. 

— Moderate effectiveness. — Commercial visits, processing equipment 
without know-how, documented proposals. 

— Considerable effectiveness. — Licenses with know-how, consulting 
engineering documents and technical data. 

— High effectiveness. — Processing equipment with know-how, train- 
ing on high-technology areas, technical exchanges with ongoing 
contracts, joint ventures, licenses with intensive teaching efforts, 
and turnkey facilities.^ 

This list suggests the broad range of activities which can be viewed 
as involving some degree of technology transfer. The var^^ing degrees 
of effectiveness suggested in the breakdo^^Tl above reflect judgments 
which are generally realistic. However, as noted in section 1.1, 
effectiveness depends not only on what is being transferred and how 
but also on the absorptive capacity of the receiving country. 

In the case of the transfer of products without maintenance and 
operations data or related production know-how, the possibility of 
reverse engineering arises. This process involves disassembling and 
analyzing a product or weapon to determine how it was manufactured. 
However, a country's capability for manufacturing comparable prod- 
ucts or weapons may not be adequate. Even in the case of other in- 
dustrialized countries, special manufacturing techniques or processes 
may either not be available or not understood. Reverse engineering, 
therefore, is not a straightforward proposition and may or may not 
be effective, depending on the item in question. 

Analysis of foreign weapons or militarily significant products may, 
however, have other effects, such as suggesting design changes in the 
receiving country's weapons or equij)ment (without seeking to produce 
the foreign item) or suggesting countermeasures. 

1 Turnkey facilities are completely equipped production or processing facilities. Training 
Is frequently provided. 


The Defense Science Board report also stressed the need to control 
critical technologies. An interagency task force chaired by the Dej)art- 
ment of Defense is presently examining ways of identifying and placing 
special emphasis on controlling critical technologies and associated 

1.4 Contribution to the military potential oj a country receiving civil 
technology transfer. — There are four general ways in which civil 
technology transfers (that is, transfers for civil purposes) might 
contribute to the military potential of the receiving countr^^ First, 
where the technology is embodied in a product which has potential 
military application it is possible that the product itself might be 
diverted from an intended civil use to some military use. Second, 
know-how might be transferred to produce products, such as electronic 
components, for the civil sector of another country. These products 
might in turn be applied to military as well as civil uses. Third, 
know-how supplied for civil purposes might be diffused from the civil 
sector to the military. The process through which this might occur 
in other countries is little understood. However, the extent and rate 
of diflFusion would be affected by the level of industrialization of the 
receiving country and its ability to understand and replicate special 
processes and equipment involved or find substitutes. Such needs as 
specialized training] for additional personnel may also have a limiting 
effect. Finally, it is sometimes argued that if imported technology 
has a resource-releasing effect (through more efficient use of resources), 
resources released from the civil sector might be redeplo3^ed in support 
of military programs. It is difficult to estimate the potential effects 
of such a process. Whether it would occur at all would depend on 
whether the technology, under local conditions, had a net resource- 
releasing or resource-demanding effect, whether the particular re- 
sources were of military use, whether the civil sector had no special 
claim on the resources, and other considerations. The chain of assump- 
tions involved makes estimates of questionable value. 

U.S. laws do not provide for a resource-releasing effect as a basis 
for denying exports. Under the Export Administration Act, export 
controls for security purposes are based on findings of resultant con- 
tributions to another nation's military potential which would be 
detrimental to U.S. national securit}^ 

1.5 Extent to which technology is in the public domain, under the 
control of the government, and in the possession of proprietary concerns. — 
There is no precise measure of the extent (in absolute or relative terms) 
to which technology is in the public domain and in the possession of 
proprietary concerns. 

Certainly, in the United States, much technology is in the public 
domain, and there is very little the Government can do (even if it 
wished to) about controlling the flow of information via, for example, 
technical and trade journals. In many cases, however, technology in 
the public domain is not the most advanced technology except in 
fields such as agriculture, health, education, and construction. In the 
case of expired patents, technology of possible interest from the 
tandpoint of military application is for most industrial nations 
requently obsolete. ]\Ioreover, as discussed in preceding sections of 
this report, the most effective forms of technology transfer to involve 
steps well beyond the transfer of inform.ation. 


Much technology of potential military interest is proprietary. The 
concern controlling the technology may, therefore, have a stake in 
protecting it. TMiere questions of transferring proprietary technology 
arise, the controls summarized in section 1.2 are applicable. More- 
over, the exercise of controls is probably more effective since the poten- 
tial sources of technology transfer are limited in number in many 
important technical fields. Government control is, therefore, not 
synonomous with Government ownership. In addition to having the 
authority to control exports, the Government can impose security 
classification. This mechanism has been used to control the most 
sensitive military and nuclear technologies. 

2. The Effect of Technology Transfer on U. S. Technological 


2.1 Is U.S. technological superiority declining? — The concept of 
technological superiority is inexact. There are no precise measures of 
the relative overall technological strength of various countries, and 
relevant data are frequently not available. The problem is especially 
difficult where the comparison involves countries which are at roughly 
comparable levels of scientific attainment and industrialization. 

Judgments concerning relative technological strength are sometimes 
based on highly visible differences such as the emergence of an ad- 
vanced technology in one country and its absence or late introduction 
in another, or the level of sophistication of the technology known or 
estimated to be embodied in various end-items, including weapons. 
The demand for U.S. products embodying advanced technologies re- 
mains substantial; clandestine efforts to secure such products or the 
underlying technologies usually are j)rompted by technical deficiencies 
or desires to develop countermeasures to U.S. systems. On the basis 
of such indicators, it is fair to say that the United States retains 
important technological (qualitative) advantages in a number of 
important fields. 

On the other hand, there is no room for complacency. The 1976 
(bicentennial) report of the National Science Board ^ reflected a num- 
ber of concerns about the state of research and development in the 
United States (without comparing the situation there with that 
abroad). Moreover an examination of the state of United States and 
European science and technology in connection with the 20th anni- 
versary of the NATO Science Committee suggested less vitality in 
Western science and technology today than in the 1950's and 1960's. 
Nevertheless there was no suggestion that the West's position in 
science and technology, capable of outstanding achievements in cer- 
tain fields, remains hindered by a system which tends to cHscourage 
technological innovation. Most recently the American Association 
for the Advancement of Science conducted a meeting wliich exj^ressed 
concern about the decline of U.S. technological superiority. Assess- 
ments such as these are, of course, intended to ])rovide a stimulus to 
remedial action. They are not necessarily intended to represent pro- 
jection of an inevitable downward trend for the United States or the 

2 Science at the Bicentennial. 

U.S. technological and industrial strength is vital to the security 
of the NATO Alliance and our other alliances. Regarding the weapons 
available to members ol" NATO in comparison with those of the 
Warsaw Pact countries, Dr. William Perry, Under Secretary of 
Defense for Research and En^-ineerini?, has stated : 


In most cases * * * new Soviet equipment is on a par with corresponding NATO 
equipment, so the existing qualitative edge of deployed NATO equipment can 
be expected to degrade as the Soviets replace deployed equipment. The principal 
alliance qualitative advantages will continue to lie in weapons which rely on 
miniaturization, large scale integration, advanced sensors, digital computers, 
and displays. The NATO technology base is superior to that of the Warsaw 
Pact in each of these areas, but the lead is fragile, and may be threatened by a 
Soviet military research and development effort which significantly exceeds that 
of the United States. 

In the case of NATO in particular, sharing advanced weapons 
technology strengthens the common defense. One of the most common 
forms of the transfer of weapons-related technology among allies is the 
licensed manufacture or coproduction of advanced weapons systems 
and components. Data transfers and cooperative research and de- 
velopment are also used. In the case of transfers from the United 
States to European members of NATO, the benefits to the alliance 
are that the Europeans do not have to wait to deploy such advanced 
weapons until U.S. forces have been supplied. In some cases, the alter- 
native to the sharing of technology and coproduction arrangements is 
not for the Europeans to purchase weapons and equipment from us 
but rather for them to produce a European version meeting the same 
requirements. Where licensing and coproduction are accepted, we gain 
some sales and royalty fees; where a European system is produced, we 
end up with no sales at all (other than possibly the sale of certain 
components) . 

In some instances, the United States has itself accepted weapons 
or equipment of European design and is engaging in joint develop- 
ments. Such approaches contribute to making the most effective 
use of allied capabilities from the standpoint of our mutual security 
interests. U.S. firms participating in cooperative developments share 
the technology, profits, and work opportunities. Where joint develop- 
ments are undertaken or the United States produces European- 
designed items, greater means are available to the Europeans to pur- 
chase other defense equipment from the United States. Although 
coproduction frequently involves sophisticated hardware, by the time 
production know-how is transferred through licensed manufacture 
abroad, we are usually working on the next generation of technology. 
The process, therefore, has to be viewed as a continuing one. 

In the case of dual-use technologies — those having civil uses but 
also potential military applications — the transfer process from the 
United States to countries other than Communist countries is largely 
determined by judgments made by private concerns (for example, 
the judgment that a subsidiary must be established abroad in order to 
maintain a share of a particular market which might otherwise be 
lost). In the past, licensing and other arrangements leading to the 
transfer of technology abroad frequently did not not involve the most 
advanced technology available to the firm having proprietary control 
of the technology. However, more recently, other industrially ad- 
vanced, resource-rich nations have been seeking advanced U.S. tech- 
nology and in some cases have had the leverage to obtain it from 
private firms. 

In the case of both weapons-related and dual-use technologies, it 
should not be assumed that efforts to retain specific technologies in 
the United States would insure technological superiority. Such efforts 
alone might be counterproductive. The temptation to rely on existing 
technology, coupled with decreased Government research and develop- 
ment funding, might lead to a slowing of efforts directed toward the 
research, development, and continuing technological innovation that 
are essential to continued U.S. technological superiority. It is under 
such circumstances (rather than as a result of the transfer of tech- 
nology abroad) that loss of U.S. technological superiority might occur. 

2.2 Do weapons sales degrade U.S. superiority? — One issue in con- 
sidering requests for advanced weapons is whether their export could 
result — directly or indirectly — in the leakage of critical technology to 
possible adversaries, in particular the Soviet Union. 

As discussed above, if an example of an advanced Aveapons S3^stem 
were obtained by a possible adversar}^, three possibilities VNOuld arise: 
An effort might be made to copy the s^^stem; some of its design features 
might be added to indigenously developed and produced weapons; 
and pointers for the development of count ermeasures might be un- 
covered. These are clearly risks we wish to preclude or minimize. 
However, the realization of these potential gains is by no means 
automatic. For an adversary to capitalize on the acquisition of a 
weapons S3^stem he ma^^, for example, require highly sophisticated 
manufacturing techniques and processes. 

Moreover, while we clearly wish to avoid an}^ contribution to the 
improvement of the Soviet TJnion's military capabilities, it should be 
recognized that there are ways of compensating for lack of sophisti- 
cated technologies. Highly effective weapons can be developed by 
stressing simplicit}^, commonality^, redundanc}', and incremental 
change in design philoso})hy and cpiantity in deployments. AVhere 
risks of leakage are considered to be present in the sales of weapons, 
the}' m.ust be weighed against the value to the United States of making 
our enhanced military capability available to allies and friends. 

This consideration is frequently judged to outweigh the risk of 
leakage. We require, however, that efforts be made to protect against 
leakage, and control is exercised over the reexport of weapons and 
over the export of U.S. designed weapons manufactured abroad. 

2.3 Which mechanisms of transfer are most detrimental to U.S. 
superiority? — From the standpoint of our national security interests, 
the mechanism of transfer of technology is of secondary importance. 
Where decision is made that transfer of technology is to be subject to 
control, no effort is made to differentiate between transfer mechanisms. 
We would not wish to see the technology transferred through an}^ 

It remains true, of course, that there are grachitions of effective- 
ness, as discussed above. A casual conversation or visit to a factory is 
a far less effective way of transferi'ing technology than tlie export of a 
turnkey plant, together with the training of persons in the importing 
country to oj^erate and maintain the ])lant. Fortunately, many ol| the 
more effective transfer mechanisms are susceptible to effective, en- 
forceable controls. 

Other aspects of the i)roblem are, however, of greater significance 
than the transfer mechanism. First, it is basic to the entire process to 
identify the technologies which are critical and should be controlled. 


This is a continuing process and is reflected in detailed definitions in 
regulations on the control of exports. Special efforts are, however, 
being made to review the question of what technologies are critical in 
the light of the report of the Defense Science Board Task Force re- 
ferred to above. Second, in most instances of dual-use technologies 
which are controlled, the United States is not the only potential 
supplier. Other Western countries and Japan are frequently potential 
sources of the similar technologies. Therefore, their cooperation is 

In the nuclear area all significant cooperation must be pursuant 
either to a bilateral agreement for cooperation or through the Inter- 
national Atomic Energy Agency. The mechanism through which the 
technology is transferred depends on the sensitivity of the technology 
and the strength of the assurance that a technology will not be used 
for military purposes. The most sensitive technology is not exported. 
Other sensitive technology may be exported pursuant to a bilateral 
agreement usually with some type of multilateral control. 

2.4 Effect of SALT on our technological superiority vis-a-vis third 
countries. — SALT I froze United States and Soviet ballistic missiles 
quantitatively, not qualitatively, and froze ABM's qualitatively as 
well. Both sides remained free to continue modernization and research 
and development, and both sides have done so. Thus, SALT I has 
had no effect on U.S. technological superiority. In some areas of 
strategic weaponry, we have improved our position (for example, 
cruise missiles) ; in others, such as MIRV's and accuracy, our lead has 

SALT II will include qualitative limitations in 'certain areas. 
However, research and development will not be precluded. Therefore, 
there is no reason to suppose that there will be any erosion of our tech- 
nological position in areas vital to our interests. Technology transfers, 
under appropriate controls, consistent with the provisions of a SALT 
II agreement, would not undermine our technological position vis-a- 
vis the Soviet Union or any other country. 

Few countries aside from the United States and the Soviet Union 
are developing significantly strategic forces. The United Kingdom and 
France already have limited strategic forces, and we see no prospect 
that these will achieve advances of a character which would out- 
distance U.S. forces technologically. Similarly, the People's Re- 
public of China has achieved initial strategic capabilities, but it 
has a technological base many years behind that of the United States. 
Given the pace of our research and development effort, U.S. supe- 
riority will be maintained with respect to these and other countries. 
SALT will have little if any effect on this relationship although it will 
affect the incorporation of certain advances in specific weapons 

3. The Kationale for the Transfer of Technology From the 
United States to Foreign Countries 

3.1 Relationship between security rationale and commercial rationale 
for facilitating or restricting technology transfer. — From the standpoint 
of the principal concerns considered in this report, the primary factors 
influencing U.S. technology transfer policies are, on the one hand, 
national security factors (including political, economic, and military 

37-153—78 3 


aspects) and, on the other, the traditional rehictance of the Govern- 
ment to intervene in private commercial transactions unless clearly 
necessary (that is, the desire to provide as broad a scope as possible 
for private initiative in support of a dynamic economy). 

In the case of dual-use technologies having potential military as well 
as civil application, the Government reviews and occasionalU' inter- 
venes in decisions of private firms to transfer technologies. Proposals 
by private firms to transfer dual-use technologies to Communist 
countries are properly subject to Government control and are reviewed 
on a case-b^-case basis, as are proposed transfers of particularly 
sensitive technologies to non-Communist countries. 

Where weapons or militar\^ equipment and related technologies are 
involved, the Government invariably exercises control. There have 
been a number of cases where private concerns have sought to s^^ll 
abroad conventional weapons systems and equipment which the 
Government considered inadvisable under the circumstances existing 
in the receiving country or region, or untimely from the standpoint of 
other security or political considerations. To relieve the pressures 
which may be generated to approve such transfers after sales presenta- 
tions have been made abroad, Department of State approval is re- 
quired before proposals or presentotions are made to foreign govern- 
ments looking toward sales (valued at over $7 million) of significant 
combat equipment or related technical data. 

3.2 Is U.S. security enhanced by promoting foreign, deperidence 
thro'ugh weapon sales or by promoting military and industrial self- 
sufficiency of friendly foreign countries? — ^When the United States is 
the major supplier of weapons and military equipment to a country, 
the relationships developed in this \\q.j can generally afford the 
United States a degree of influence over certain types of actions of 
the importing countr}^ For example, we can seek to insure that the 
weapons and equipment transfeiTed are used only for legitimate 
purposes which do not harm our own security interests. In limiting 
the type and amount of support — such as training, maintenance, and 
spare parts — of some weapons systems, we ma}^ be able to control to 
some extent the emploA'^ment of the weapons and equipment and the 
possibility that the}^ might be retransferred. 

On the other hand, our military supply relationships are important 
but not controlling factors in how others respond to major i)olilical 
and economic issues. Moreover, in times of crisis or in negotiations 
affecting an imi)orting countr3^'s vital interests, that country may 
aiTive at decisions on grounds wholly or largely independent of the 
continuation of supplies b}^ the United States. Under such circum- 
stances, efforts b}^ the United States to impose its own views through 
threatening to terminate supplies or actually doing so may not only 
fail to achieve the immediate objective but also sour relations on a 
broader front. 

Promoting the militar}^ and industrial self-sufTiciency of friondly 
foreign countries in any full sense of the term would be in im])ortant 
respects an unrealistic objective. Among our ])rinci])al treaty allies, 
only France and the UK field a full range of national (or coproducecl 
European) weapons and military equi|)inent. Other allies (Italy and 
Germany in particular) have significant defense industries, and flapan, 
of course, has an in(Uistrinl base of great significance. For a variety of 
reasons, however, these countries do not seek to fiekl a full range of 


domestically produced weapons and ecpiipnieiit. Be3'ond these countries, 
there are at this time few countries which could aspire to self-suffi- 
ciency in the foreseeable future although varying degrees of self- 
sufficiency may be sought. 

Objectives short of heli)ing others achieve self-sufficiency can be 
served by such steps as transferring production know-how tlirough 
licensed manufacturing agreements. Withiii the constraints of U.S. 
arms control policy, such arrant2;ements can help allies and friendly 
countries achieve enhanced military capabilities at an earlier time 
than might otherwise be possible. In addition, when the United States 
plans to terminate production of specific items important to a friendly 
countr\', we may wish to permit licensed production abroad in order 
to insure the continued effectiveness of the forces of that country. 

3.3 Does the risk of leakage to the East through third countries 
warrant increasing U.S. controls on exports to other Western Countries? — 
There is very little hard evidence that technical data of U.S. 
origin have or have not leaked to the East through third countries. 
Controls are imiposed on retransfers or reexports. Most cases of diver- 
sion of U.S. products to the East do involve third countries in one 
way or another. However, the number of proven cases of such diver- 
sions is quite limited. 

Other industrialized NATO countries and Japan cooperate with the 
United States in COCOM to coordinate controls on the export of 
strategic products and technologies. Interpretation and enforcement 
of the embargo does vaiy from country to country, but thei'e is a 
large measure of agreement on what should be controlled. Present 
U.S. controls require U.S. Government authorization for the reexport 
of strategic U.S. origin goods or technologies or for the export of the 
product of previously exported U.S. origin technologies. Nonalined 
Western countries of course do not participate in C0CX3M. For their 
own reasons, however, the}^ too control certain exports. 

In the case of weapons systems and equipment, tight controls are 
exercised, and retransfers of significant items require advance approval 
by the United States. There is no evidence of significant retransfers to 
the East. 

Even taking into account the possibility that some leakage in both 
of the foregoing categories m,ay have occurred without the knowledge 
of the United States, there is no apparent need for tighter controls 
vis-a-vis other Western countries. An}^ effort to impose such controls 
would have disruptive political and economic effects and would have 
the potential for undercutting — rather than strengthening — coopera- 
tion with other nations controlling exports. 

3.4 How does the Soviet technological relationship with developing 
countries affect U.S. interests? — The Soviet Union uses both military 
assistance and sales and economic assistance to bolster relations with 
its client states and with other countries. In general, military assistance 
and sales substantially exceed economic assistance.^ 

The Soviet Union has been willing to sell sophisticated weapons ta 
almost any developing coimtr}^, has accepted somewhat lower prices 
than those for comparable Western eciuipment, and has been able ta 
make fast deliveries. Where arms deals require sophisticated training, 
personnel from developing countries are brought to the Soviet Union. 

3 For estimated amounts for 1976 and prior years see : "Communist Aid to the Less- 
Developed Countries of the Free World, 1976," Central Intelligence Agency (Unclassified). 





















In addition, military technicians are sent to developing countries. 
East European countries, of course, engage in similar efforts, and 
Cuba also provides military technicians. 

[In millions of U.S. dollarsl 

1972 1973 1974 1975 1976 


Latin America 

I^^iddie East 

South Asia 

Total 1,205 3,010 2,250 1,685 2,190 

The United States and the Soviet Union have initiated talks con- 
cerning possible restraints on conventional arms transfers. At this 
juncture, it is not possible to forecast the outcome of these talks. 

Soviet economic assistance to developing countries has included 
major technology transfers such as heavy industrial and powerplants. 
In and of themselves, such transfers are not destabilizing. To the 
extent that such transfers may make a real contribution to the de- 
velopment of particular countries, there is no reason for the United 
States to consider that its own interests have been harmed even 
though such transfers are frequently designed for political impact and 
to provide an underpinning for client relationships. Indeed, the 
"Downing Street Summit" (May 1977) invited CEMA countries to 
increase the flow of aid and other real resources to developing 

Although the Soviet Union tends to prefer bilateral arrangements, 
it contributes to the United Nations and its multilateral North- 
South programs. In these the Soviet Union frequently supports 
positions of the developing countries while at the same time taking a 
conservative financial line. Participation by Soviet delegates to such 
United Nations conferences as the decertification and water con- 
ferences and in preparations for the U.N. Conference on Science and 
Technology for Development has been low key and professionally 
competent. It is i)ossible that at some future time joint United 
States/Soviet efforts in various scientific or technical fields may benefit 
developing countries. 

o.o Are U.S. military technology exports intended to increase or 
decrease joreign dependencies on the United States? — Decisions con- 
cerning U.S. military technology exports are not based on hypo- 
thetical (concepts of increasing or decreasing dependence on the United 
States. 'J'ho primary motivation of such exports has been and remains 
to strengthen security relationships of direct imj)ortance to the 
United States and to improve the military capabilities of our 
allies. This is particularly important in NATO where standardization 
improves collective military capabilities. By far the largest })art of our 
military technology exports lias gone to our major allies, in particular 
our NATO allies, or to friendly countries confronted with military 
needs. Meeting the needs of other friendly countries also underlies our 
military technology exports. As noted in the res])onse to section 3.2, 
there are limits l)oth to the influence that can be exerted through 
military technology exi)orts and to the self-sufficiency that most other 
countries could achieve through local production of weapons. 


3.6 How do the benefits of improved relations with adversaries 
resulting jrom technology transfers compare with the risks'? — Military 
technology is not considered available for use as a means of im[)roving 
relations with j)ossible adversaries. 

In the case of other technologies of ])otential strategic significance, 
in particular dual-use technologies, controls have been imposed bat 
can be adjusted in either of two ways. First, the controls have been 
revised over the years to reflect technological developments and pe- 
riodic reassessments of what is of strategic significance. A few items 
have been dropped; and a few new items have been added; but most 
changes have been in the form of increasing the technical limits in 
embargo definitions. This permits the benefits of trade in older tech- 
nologies. Second, exceptions to the controls are made on a case-by- 
case basis largely on the same reasoning. Such exceptions are con- 
sidered both within the U.S. Government and in COCOM. Improve- 
ment of relations with the countries of concern may sometimes result 
but has not been a primary consideration. In the case of both of the 
foregoing approaches, risks are carefully and deliberately weighed 
and the overall context of our relationships are taken into account. 

As a general matter, it is clear that obtaining increased access to 
Western (including United States) technology has provided one moti- 
vation for Communist countries to seek improved relations with the 
West, and expanding technological relationships with Communist 
countries can be regarded up to a point as a reasonable and useful con- 
comitant of efforts to improve relations. In the case of countries not 
regarded as potential adversaries, foreign policy goals can be advanced 
on occasion by transferring various technologies, including military 
technologies. Especially with regard to the latter, the weighing of 
risks and benefits takes into account tlie specific circumstances of each 

3.7 What is the proper balance between foreign countries' perceptions 
of needs for strategic technologies and our perceptions? — In the field of 
military technology, requests for transfer are evaluated in the De- 
partments of State and Defense and in certain instances ACT) A, 
CIA, Commerce, Department of Energy, NASA, Treasury, 0MB, 
OSTP, and the NSC staff. The mechanism for internal U.S. review 
depends upon the nature of the technology — whether it is old or 
new, whether it has significant political and economic as well as 
defense implications, and the character and state of our relations 
with the proposed recipient. Proceedings vary somewhat depending 
on whether the proposed transfer is to be govemment-to-government 
or commercial. 

Interagency consideration of major cases is coordinated through 
the Arms Export Control Board, an advisory committee chaired by 
the Under Secretary of State for Security Assistance, Science and 
Technology. No change in these procedures is considered necessary. 
The internal review process frequently does lead to perceptions and 
conclusions different from those of the proposed recipient country. 
In these cases, transfers are denied or government-to-government 
discussions are held with a view to arriving at a course of action 
acceptable to both parties. 

In U.S. and COCOM cases involving dual-use technologies of 
strategic significance, extensive internal governmental reviews are 
conducted under the leadership of the Departments of Commerce and 
State. The primary objective of the review is to consider the risk of 


military uses of the proposed transfer which might be detrimental to 
our national security interests. Lack of evidence that the recipient 
perceives a military need for the technology is not regarded as remov- 
ing the risk of military use. On the other hand, expeiience has shown 
that credence can usually be given to assurances by the recipient of 
civil use. Transactions of this character are carried out through com- 
mercial concerns, and although government-to-government talks are 
occasionally held, questions raised about proposed transactions are 
generally conducted by the commercial concern involved and the 
prospective purchaser. For example, an export which is considered un- 
acceptable in the form proposed might be regarded as acceptable if 

In the field of nuclear energy, international institutions reflect 
varied perceptions. An explicit function described in the charter of the 
International Atomic Energy Agency, established in 1957 and now 
having a membership of 109 nations, is to promote the peaceful use of 
nuclear energy worldwide and ''(to) foster the exchange of scientific 
and technical information" to that end. The Agency is also charged 
with the task of detecting any diversion of nuclear materials for 
military purposes. The prospect of detection may deter efforts to 
divert materials. 

The Treaty on the Non-Proliferation of Nuclear Weapons similarly 
entails a dual purpose: To prevent military use while encouraging 
peaceful use of nuclear energy. One hundred and two nations have 
ratified the treaty. 

Disparate views have occurred not only between nuclear suppliers 
-and recipients but also on occasion among suppliers. In the wake of the 
1974 Indian nuclear test, however, all major nuclear suppliers formed 
:a group which has succeeded in narrowing supplier differences to the 
point where a consensus on guidelines for the export of nuclear tech- 
nology was attained in 1977. Currently, the 2-year international 
nuclear fuel cycle evaluation is the central avenue through which 
suppliers and recipients of nuclear energy technology are attempting 
to understand mutual perceptions of the need for and danger of the 
transfer ol' certain technologies (such as uranium enrichment and 
plutonium reprocessing), 

4. The Benefits and Risks of Transfers 

4.1a What is the danger of the loss of strategic U.S. technology to 
hostile nations through the various j or ms of transfer? — All exports of 
strategically significant technology are subject to licensing. The risk 
that private concerns will engage in unlicensed activities does exist 
but is quite limited. The most effective mechanisms of technology 
transfer — such as the export of turnkey facilities — would be exceed- 
inu'ly difficult to carry out on an unlicensed basis without detection 
at^some stage. This is not, of course, the case with less effective types 
of technology transfers. 

4.1b Wliat factors in addition to military should be taken into 
account in applying the test ''may adversely affect the national security 
of the United S'fatp's"? — In addition to military factors, ])olitical and 
economic factois are relevant in judging the relationship of a proj)Osed 
transfer of technology to our national security. 'J'ransfers are, of 
course, made to allies and friends that would not be permitted in the 


case of a possible adversary. Even in tlio latter ease, however, a 
balancing of the several aspects of our security interests may lead to 
the conclusion that permitting a transfer to })rocee(l may liave a 
reasonable prospect of favorably influencing our relations with a 
possible adversary without entailing major military risks. If significant 
military risks were considered to be present, a negative judgment 
would necessarily be reached despite favorable political or economic 

4.2 Do technology transfers contribute to the internal stability of the 
recipient country'? — It is difficult to generalize about the efl'ect on a 
nation's internal stability of imports of various types of technology. 
In the case of military technology, transfers to our major allies can 
have positive effects in a variety of ways: For example, licensed man- 
ufacturing agreements can have positive economic and other benefits. 

The potential effect of the transfer on military technology to other 
than our principal treaty allies is in some cases more questionable, 
the effects on regional stability must be taken into account. Guide- 
lines for the review of proposed transfers require an evaluation of 
each request in terms of such factors as the economy of the country 
involved and the regional military balanced 

With respect to transfers of dual-use technologies of strategic 
significance, centrally planned economies frequently experience diffi- 
culties in making effective use of new technology because of the 
rigidities of the production planning process. There is, therefore, to 
some extent a tension between the desire to make the most effective 
use of new technology and the system within which the technology 
is placed. The introduction of new technology may broaden the 
horizons of the recipients, but it has not been a major destabilizing 
factor. Even the inefficient use of the technology may increase pro- 
ductivity and provide benefits not otherwise obtainable. 

4.3 Does transfer of technology to our allies enhance U.S. military 
security? — Transfers of military technology to our allies have to meet 
the tests of fuffilling a genuine military requirement and enhancing 
our collective security. We have a direct security interest in insuring 
that our closest allies have the most advanced conventional weapons 
and equipment available. 

Our polic}^ vis-a-vis countries other than our principal allies (that 
is, excepting NATO, Australia, New Zealand, and Japan) is that we 
will not sell advanced weapons until they are operationally deployed 
with U.S. forces, and coproduction of significant weapons, equipment, 
and major components will be permitted only on determination of an 
execution to the policv by the President. This avoids an excessive 
demand on U.S. resources that could adversely affect U.S. security. 
The implications of such transfers are also weighed in terms of their 
regional impact since destabilizing effects in a particular region might 
also have adverse implications for our security interests. 

4.4 Does standardization of allied military e(piipment benefit the 
United States? — The military capability of NATO to maintain an effec- 
tive common defense is hampered by the great diversity of equipment. 
The cost of end items is increased because of duplicative research and 
development programs andsmaU production runs. As prices go up, the 
number of items that can be accommodated by limited defense budgets 
goes dowTi. The United States, on its own, cannot make up for allied 
deficiencies, and where our W'Capons differ from those of our aUies, 


reinforcing or reequipping them in time of need would be more difficult. 
Standardization can, therefore, benefit the United States as well as 
other NATO members b}^ enhancing the collective capacity for 

4.5 Implications of transfer of nuclear technologies. — Exports of the 
current type of nuclear power reactors utilizing slighth^ enriched 
uranium fuel do not in themselves pose a significant proliferation 
threat, provided that care is taken in the selection of the recipient 
state, that the state has agreed to adequate controls, and that the 
export takes place under international safeguards. 

Under this administration, the United States has instituted special 
controls over the export of highly enriched uranium (HEU) and 
plutonium, including the requirement that any export requests for 
more than 15 kgs of HEU must obtain Presidential review. In addi- 
tion, imder the Nuclear Non-Proliferation Act of 1978 special controls 
have been placed upon the export of any components speciall}^ de- 
signed or prepared for use in nuclear facilities. Components for ura- 
nium enrichment facilities, fuel reprocessing facilities, or heav}' water 
production plants can be exported only when specifically designated 
in the agreement for cooperation. 

The United States recognizes the proliferation dangers inherent in 
the spread of certain sensitive technologies (uranium enrichment, 
reprocessing, and heav}^ water production) and has maintained a 
policy of not authorizing the export of such facilities and of urging 
other supplier nations to exercise similar restraints. Through the 
Nuclear Suppliers Group, agreement has been reached on the need to 
exercise restraint in the export of certain sensitive technologies, and 
the major nuclear suppliers have agreed upon a ''trigger list" of items 
which are not to be exported without safeguards. 

4.6 What types of technology should he transferred to the People's 
Bepuhlic of China? — The same ground rules that apply to the Soviet 
Union and other Communist countries apply in the case of the People's 
Re])ub]ic of China. These ground rules preclude the transfer of military 
technology and provide for the control of transfers of dual-use stra- 
tegically important products and technical data. The foregoing 
restrictions do not preclude the export of a wide range of nonstrategic 
technologies which can benefit both the People's Republic of China's 
further development and the economic and commercial interests of 
the exporters. 

4.7 Contribution of scientific and technical information exchange to 
Chinese military potential. — Intergovernmental j)rograms of scientific 
and technical coo])eration are not yet carried on b}^ the United States 
and the Peoj)le's Republic of China. A small number of Govern- 
ment-facilitated exchanges takes ])lace each year involving a wide 
range of scientific, technical, and social fields. These exchanges are of 
short duration and are i)rimarily directed toward basic research. They 
are not considered to have any significant impact on the military 
potential of the People's Republic of China. 

4.8 J Joes Chinese reluctance to accept foreign aid affect its 
receptivity to transfer of U.S. technology? — The Chinese have 
traditionally em])hasized self-reliance, and, except for a j)eriod during 
the 1950's when assistance from the Soviet Union was received, have 
refused to accept foreign aid, in the sense of accepting financial 


assistance from foreign governments. The People's Republic of China 
has, however, been wiUing to engage in deferred payment and banking 
arrangements that are essentially private suj)plier credits. 

The People's Republic of China has made large-scale j)urchases 
of Western machinery and equipment (including some ])urchases 
from the United States), and this can be expected to continue under 
the ])resent government, which is placing new emphasis on scientific 
and technological achievements. The recently concluded National 
Science Conference in Peking demonstrated the seriousness of the 
intent of the current leadership of the People's Republic of China to 
'learn from the advanced science and technology of other countries." 

4.9 What are the implications for U.S. interests of the effect oj tech- 
nology transfers on the internal economic and potential patterns of devel- 
oping nations.^ — Technology transfers may help promote economic 
and political development in developing countries. However, the his- 
tory of technical assistance efforts as well as transfers of private 
technologies makes clear the uncertainty of the effects in particular 
cases. Political progress and economic progress do not necessarily go 
hand in hand. Moreover, the extent to which various sectors of the 
population of developing countries participate in possible economic 
gains is typically quite uneven, and the political course of developing 
countries is sufficiently turbulent to necessitate caution in gener- 

4.10 Effects of controls on incentives for innovation. — There is little 
evidence that present U.S. controls have the effects of discouraging 
innovative effort on the part of U.S. industry. This is because the 
controls are centered on a single group of countries — the Communist 
countries. If an effort were made to preclude the transfer of tech- 
nology to non-Communist countries as well, it is likely that the effect 
on innovation within the United States would be stultifying — with 
continuing reliance placed on increasingly obsolescent technologies 
(although this has been avoided in the case of sensitive nuclear 
techniques) . 

At present, we do restrict certain teaming arrangements due to 
military sensitivity of ancillary data that would require transfer under 
a teaming aiTangement. Also, losing competitors for U.S. systems are 
usually denied the opportunity to offer their losing design to other 

Export controls may stimulate some countries to Avhich exports are 
restricted to develop and produce embargoed items indigenously. To 
the extent that this is the effect, fixed levels of controls in place for 
many years tend to lose their utility. However, unless the indigenous 
Eastern research and development not only reproduces the items 
previously embargoed but also keeps up with new Western advances, 
an embargo would still be useful provided it were periodically revised 
to cover the new advances. Furthennore, the embargo might perhaps 
have caused a diversion of Eastern resources to accomplish the in- 
digenous development. 

4.11 Evaluation of U.S./U.S.S.E. cooperative programs. — The 
United States and Soviet Union are currently engaged in cooperative 
scientific and technical efforts under 11 bilateral agreements. The 
activities under those agreements generally involve exchange of infor- 
mation and experience and basic — and sometimes applied — research. 

37-153—78 4 


Although the Soviets hi some areas have sought activities more 
directly related to production technology, they have accepted U.S. 
insistence, and sometimes insisted themselves, on more basic research 

The results of joint research are regularly published in professional 
journals or as separate documents. Both sides try to translate the 
most important material exchanged, but the expense of doing so 
limits the extent to which this can be carried out. Cost also limits 
distribution of reports, studies, and meeting records. Dissemination 
in the United States of results under the science and technolog^^ agi ce- 
ment is now beino- improved by means of a newsletter and increased 
funds for translation. A continuing effort is made to insure that gains 
under all agreements are reciprocal, equal, and mutually beneficial. 

The first consideration in evaluating U.S. /Soviet scientific and 
technical cooperative programs is whether they are scientifically and 
technically valid. Thus, both sides must be able to contribute sub- 
stantiplly; the prospective results must be mutually beneficial; access 
to qualified ])eople and institutions must be recijnocal; and artificial 
barriers must not be raised against a genuine exchange. Projects are 
reviewed on a continuing basis, and where results are not satisfactoiy, 
projects are dropped or revised. 

With respect to costs and benefits, each project is evaluated on its 
merits, in some instances taking into account benefits of related ])roj- 
ects. The U.S. share of the costs of these ])rojects is funded by Na- 
tional Science Foundation or by various other scientific and technical 
agencies. Neither these agencies nor individual scientists would wish 
to participate if useful results were not forthcoming. 

The cooperative programs and projects are reviewed periodically 
on an interagency basis. Special interagenc}^ reviews are conducted 
in connection with decisions on whether to continue or modify agree- 
ments. In this regard the Department of State is chaiged with insuring 
that technolog}^ transfer assessments are included as a part of this 
review. A special panel established by the National Academy of 
Sciences reviewed the basic agreement on scientific and technological 
cooperation in 1977 before it was renewed. 

4.12. Evaluation of transfers to the U.S.S.R. of hydrocarbon tech- 
nology. — Soviet petroleum 'production has grown at a rapid rate. 
Most of the needed technology has been developed indigenously. 
However, the relatively small amount of technology imported from 
the West has included important items. The imported technology has 
contributed to oil and gas production. 

In the early 1960's, Western controls on the export of wide-diam- 
eter pipe were droj)ped. Controls on ex})orts from the United States to 
the So\ iet Union of ])etroleum exploration and ])roduction equipment 
were discontinued for a time but have recently been reestablished. 

4.13 Are Soviet technology imports more resource demanding or re- 
source releasing? — No study of overall Soviet technology imports luis 
been made from the standpoint of determining whether they have more 
resource-demanding or resource-releasing effects. It is not clear how 
such an overall evaluation could be made. However, there appear to 
have been some major cases where imj)orts for civil ])ui-poses have 
been resource demanding. As a case in ])oint. Western technology has 
been im])orted for the ])roduction of automobiles and trucks. This has 
required the allocation of substantial domestic resources (including 


skilled workers) for production and also for various elements of tlie 
infrastructure necessary to accommodate increased munbers of 
motor vehicles. In these cases where the effect may be resource re- 
leasing, it is indeterminate whether the released resources would be 
made available to the military sector rather than to othei- civil needs. 

4.14 HoiD would LDC proposals on technology transfer affect the 
U.S. domestic economy f — Develo])iTig couirtiy ])r()])osals on technology 
transfers are focused on formulating a code of conduct on the transfer 
of technology. They seek a mandatory code which would establish 
rules to bind enterprises in negotiating and carrying out transfer 
agreements. The most important: rules would require that enterprises 
include in their agreements a long list of guarantees, and that they also 
avoid a number of restrictions or conditions sometimes associated with 
patent licensing and know-how contracts. The codes would a])ply to all 
international transfers of technology, including those among develo])ed 
Western countries and between the West and Communist countries. 
In the view of developing countries, the code's provisions would 
also apply to domestic transfers where one of the parties is foreign 

As proposed by developing countries, the code would have impor- 
tant disruptive effects on domestic licensing/know-how operations of 
U.S. enterprises, on their relations with foreign subsidiaries, and on 
international technology flows generally. By lowering the rate of 
return on sales of existing technology, the code would also affect our 
domestic innovation by reducing the profitability of generating new 

4.15 In what ways should the United States take into account the 
state monopoly feature of the Soviet economy? — Concern has frequently 
been expressed that private U.S. exporters would be at a disadvantage 
in dealing with Soviet governmental purchasers, and prospective 
Soviet purchasers to use tactics (also familiar in domestic U.S. trans- 
actions) of trying to play one bidder off against another. A broad 
cross section of U.S. industry which has had dealings with the Soviet 
Union was queried on the subject. They unanimously rejected the 
notion that trade transactions were needed to redress the supposed 
imbalance in bargaining power. What U.S. companies have to offer 
is attractive enough and tj.S. businessmen are skilled enough negotia- 
tors so that profitable results can be obtained. 

The executive branch can and does provide to U.S. businessmen 
information on the Soviet Union and its trading organizations which 
may be helpful to business. 

From the standpoint of our security interests, one hj^pothetical 
risk is that the process of playing one bidder off against another might 
lead to Soviet requests that U.S. industry offer items which we would 
necessarily <lecline to license. However, the knowledge and responsible 
character of U.S. business interests minimize this risk. 

5. Trends in Technology Transfer by the United States 
AND Othei^ Countries 

5.1 Data base concernirig past technology transfers and- controls. — 
Given the varying definitions of technology and technology transfer 
and the broad array of mechanisms through which technology can 
be transferred with varying degrees of effectiveness, there is no single 
set of records or statistics which mirrors the complete flow of tech- 


nolog^" to or from the United States. Indeed, there is no way of measur- 
ing activity through a number of mechanisms (such as seminars, dis- 
cussions, trade journals, and so forth); generally, these are, however, 
less effective transfer mechanisms. 

One relatively broad measure is found in Standard International 
Trade Classification (SITC) categories 7 and 8, subsets which cover 
machinery and instruments. These subsets offer a general guide to the 
flows of technology and can also be analyzed in terms of items con- 
sidered to incorporate advanced technology (judged to amount to 
around one-fourth of the total volume of STIC 7 and 8 exports). 
These data tend to show that worldwide demand for U.S. technology 
remains substantial (an indication of continuing U.S. technological 
strength). In the context of East/West trade, however, the United 
States remains the supplier of origin of only a small percentage of the 
East's needs. This situation is illustrated in the following table: 


1965 to the— 

1975 to the— 











Advanced technology 






These figures are somewhat understated because of transfers of 
U.S. technology recorded as exports from Western Europe and Japan. 
Even taking a high estimate for such trade, however, the U.S. per- 
centage of OECD technology exi)orts to the East would only increase 
from 8 to 10 or 11 percent. 

The cost of technical data is generally included in the price of com- 
modity sales. Statistics reflecting the value of technical data trans- 
ferred independently of commodity sales are not readily available. 
Data on receipts from royalties and fees provide another set of availa- 
ble information on technology transfei's. These data are available only 
on a highl}^ aggregated basis, and it is not clear whether reported 
receipts from foreign affiliates of U.S. companies (80 percent of all 
payments) reflect the actual value of the technology transferred, or 
decisions by individual enter})rises on how much foreign source reve- 
nues generally is to be returned via the royalties channel. However, it 
is not clear how fees and royalties are precisely determined, either from 
affiliates or nonaffiliates (for example, cost of transfer; opportunity 
cost; share of research and devolo])ment; value to recipients; a stand- 
ard figure common to a particular industr}'", and so forth). 

The data base on export controls, however, is extensive because of 
the records maintained by authorities concerned with licensing, regu- 
lation, and intelligence. There are, on the other hand, aspects of 
technology transfer controls which are inherently difricult to measure. 
For examj)le, intelligence estimates suggest that perhaps $150 million 
of Western em})ai'goed goods were illegally ship|)e(l to the East between 
197:> and 1977 (in comparison with $150 billion in legal shipments of 
which about $45 billion was for machinery and equipment). While 
this is regarded as a generally accurate order of magnitude figure, it is 
a|)pjirent that the nature of clandestine efforts precludes wholly 
accurate measures. 


In the case of military technology, quarterly reports are i)rovi(le(l to 
the Congress on every license or technical assistance agreement valued 
at over $1 million. Annual reports are provided on actual exports. An 
automatic data processing system is being installed by the Department 
of State which will eventually include all records of technical data 
transfers in the munitions field. 

5.2 How should technology transfers be measured? — The preceding 
section considered several gross measures of technology transfer andi 
noted that data are not available which reflect the flow through each 
potential technology transfer mechanism. 

For most purposes such gross measures are adequate. In any event, 
it would be neither practical nor useful to seek precise measures of the 
flow of all relevant data and information through journals, casual 
conversations, and so forth. To provide a better understanding of 
trends and implications, qualitative information should — when 
possible — be used to supplement quantitative information. For ex- 
ample, although difficult to prepare, estimates of the effectiveness with 
which transferred technology is being absorbed by and diffused 
within the receiving country would be useful. Data suggesting the 
productivity effects of transferred technology are also difficult to 
obtain, but any available indicators might be analyzed. 

From the national security standpoint, current interest in identi- 
fying critical technologies and keystone production equipment suggests 
the possibility that more effective controls might result from a sharper 
focus on a limited number of highly significant technologies. Collection 
of data could also be more sharply focused if this general approach 
proves practical. However, even if technical agreement is reached on 
what technologies are critical, it will remain difficult to quantify how 
much the effectiveness of weapons and other militar}" systems of 
possible adversaries would be enhanced if such technologies were 

5.3 Cooperation with other key suppliers in controls. — The United 
States cooperates with other NATO countries (less Iceland) and Japan 
in COCOM, which coordinates the national export controls of its 
members. Agreement is reached on the items to be controlled, and the 
list is reviewed and revised periodically. These arrangements are 
wholly voluntary. 

Members of COCOM are free in specific cases to ask for exceptions. 
These do not constitute a large percentage of COCOM exports. 
From 1971-75, the $600 million of exports which COCOM approved 
as exceptions from the embargo was less than 1 percent of the $86 
billion total exports from COCOM countries to the East for these 
years. The value of cases denied by COCOM was only 4 percent of 
approved cases. In the 1970's the U.S. share of exports to the East 
approved as exceptions from the embargo has exceeded that of any 
other country and is now more than 40 percent of the total. 

In most technological areas, the United States is not a unique 
supplier. U.S. leadership in advanced computers is, however, a major 
example of technological superiority. Other leading exporters of 
advanced items are German}^, Japan, France, and the United King- 
dom. Several countries outside of COCOM are able to supply advanced 
items. While they are neutral or nonalined, they control exports for 
their own reasons. 


The priniaiy Western producers of advanced weapons and vreapons 
technology, in addition to the United States, are the United Kingdom, 
France, and to a lesser extent, Germany and Itah" in NATO, Sweden, 
and Switzerland. The U.S. European weapons technology balance 
varies considerabh' from s^'stem to system. American technology is 
far advanced in some areas such as precision-guided weapons and 
some electronics and missiles, and there may be a lead in other areas 
such as air frames and jet engines. However, there are also areas 
where the technology balance is relatively even (tanks, tank guns) 
and some where there is a European lead. 

5.4 Trends in exports with significant military implications. — The 
controls exercised by the United States and other members of COCOM 
are designed to withhold militarih' significant exports. Since many 
technologies have potential civil as well as military uses, the review 
process necessarihr seeks to determine whether legitimate civil uses 
can be accommodated without significant military risks. 

jMuch discussion of export control issues has centered around exports 
of computers, for which there are many bona fide civil uses. Com- 
puters and computer peripherals account for more than half the total 
of COCOM approved exceptions cases. Where such exceptions are 
made, however, it is because the circumstances or conditions of the 
export make clear that the exports would not have adverse military 

^ince the agreem.ent of all COCOM members is needed for excep- 
tions, the United States is able to exercise a veto if necessary. On a 
verv few occasions, COCOM members have licensed transactions 
without prior approval pursuant to COCOM 's procedures. However, 
the number of such cases has been small, and there is no trend in 
this direction at the present time. 

5.5 Correlation between military technology transfer and regional 
stahiVdy. — There is obviously some correlation between areas of ten- 
sion and requests received for weapons and military equipment. There 
are, however, no generally accepted criteria on which to base judg- 
ments concerning whether weapons transfer will be stablilizing or de- 
stabilizing. Each reauest must be weighed in the light of the situation 
and intentions of the government making the request, the capabilities 
and intentions of possible regional adversaries, and such facloT-s as 
whether the proposed export will help achieve or maintain the local 
balance or will introduce new, more advanced capabiUties \vhich might 
start a new cycle of a regional arms race. Moreover, it is apparent 
that the spread of nuclear weapons would be highly destabiUzing. 
Major efforts have been underway for years to discourage their further 

5.6 Implications of Soviet sales of military technology.— ThQ United 
States and Soviet Union have initiated talks on constraints on con- 
ventional arms transfers to third countries. The outcome of these 
discussions cannot be predicted at this time. 

5.7 International cooperation in the control of nuclear energy. — 
Close and effective cooi)eration among the United States and other 
major nuclear supplier states has been developed in the Nuclear 
Supi)licrs (iroup, wliose nuijor elfort thus far has been development of 
guidelines for the transfer of nuclear technology and materials. The 
guidelines, whicli have been accepted by nearly all significant supplier 
states, call for the application of international safeguards (Interna- 
national Atomic Energy Agency saf.\guards) on transferred tcclmology 


and materials and for the exercise of special restraint in the export of 
certain sensitive technolooies such as reprocessing, uranium enrich- 
ment, and heavy water production facihties. 

These voluntary controls considerably raise the difficulty and cost 
of a would be proUferation of embarking* on a significant nuclear 
weapons program. There have, of course, been some major disagree- 
ments between the United vStates and other sui)pUers in the past. At 
present, the general harmonization of policies is considered satisfactory. 

6. The Need for Controls on Transfer of Technology 

6.1 Past experience and recommended criteria. — The effectiveness of 
controls in the past needs to be considered from several points of 
view. On the one hand, in terms of controlling the outflow of militarily 
significant technologies, the controls can be judged to be I'easonably 
effective. There have been some known violations of the export 
control system, but these have been relatively infrequent (undetected 
A'iolations may also have occurred to some extent). On the other hand, 
export controls have not precluded possible adversaries from acquiring 
significant military capabilities by dra,wing on technologies available 
to them. Moreover, export controls have not prevented clandestine 
efforts to acquire technology. In any event, export controls are not a 
substitute for continuing technological advances on the part of the 
United States and its aUies in order to provide a sustained qualitative 
edge over possible adversaries. It may be possible to increase the 
effectiveness of existing export controls by focusing them more 
sharply on a limited number of highly significant critical technologies. 
This is being examined. 

In implementing this legislation, the identification of items to be 
controlled has been bpsed on judgments as to: (1) Goods and tech- 
nologies principally used in peacetime for the development, produc- 
tion, or utilization of arms and weapons systems; (2) goods from which 
technology of military significance might be exti'acted; and (3) goods 
and technologies of military significance in which the Communist 
countries have deficiencies. The state of the art in the receiving country 
and the level of its production capabilities, if am^ must be considered. 

In reviewing proposed exceptions, the particular circumstances of 
the case are considered, and approvals are based on judgments of 
minimal risks of diversion to significant military use, taking into 
account the technical specifications and quantity proposed for export 
and the end user and end use. Where relevant, political and economic 
factors affecting our security are also considered so that a full view of 
our security interests can be obtained. If there were evidence of past 
adverse applications of Western technology to military purposes by 
Communist countries, contrary to the understandings on which exports 
were based, such experience would tip the scales heavily in favor of 
den3dng comparable exports in the future. However, there are few 
instances where we have evidence of such misuse. 

In the case of munitions list items, commercial export of all techni- 
cal data on every item is controlled through a formal process. Export 
of the data is approved only for specific destinations and specified 
purposes. Neither technical data of this type nor products resulting 
from its utilization may be transferred to third countries w^ithout 
U.S. approval. Foreign companies or governments must agree to this 
in wTiting prior to receipt of the data. 


6.2 Effectiveness oj controls on nuclear weapons technology. — In 
general, it is believed that controls on nuclear weapons technology as 
such are quite effective at the present time. This is in part because 
of the security classification imposed on weapons technology. 

6.3 Adequacy oj COCOM controls. — The export controls of other 
COCOM countries are based on the list of controlled items negotiated 
in COCOM and are thus as restrictive as those imposed by the United 
States, except for the relatively few items which the United States 
controls unilaterally. Other COCOM countries apply fewer resources 
to the enforcement of controls than does the United States. However, 
the effectiveness of controls depends on these countries, as in the 
United States, primarily on the desire of the vast majority of exporters 
to comply with the regulations adopted by their governments in the 
interest of security. 

Some U.S. -origin embargoed goods and technologies do find their 
way to the East via Western European countries and Japan. U.S. 
consultants with the governments of those countries do result in the 
improved efforts to preclude the recurrence of such situations. Tighter 
controls on U.S. exports to Western countries would involve a dis- 
proportionately high political cost in terms of weakening our alliance 
relationships and would therefore adversely affect our security 
interests. National controls coordinated by COCOM, while suscep- 
tible to improvement, are adequate to achieve the })rimary objective 
of slowing down the rate of transfer to the East of military significant 

6.4 Are controls on subsidiaries needed? — The ability of U.S. firms 
to establish subsidiaries abroad has been an important factor in 
many instances in opening up certain markets and maintaining 
access to others. In general, these activities of U.S. concerns have 
contributed to the strength and vitality of the American economy. 
There is no evidence that these activities have otherwise adversely 
affected our national security interests. In fact, parallel ex})ort con- 
trols administered by COCOM member countries have made it 
unnecessary for the United States to control ex{)orts of strategic 
items from U.S. subsidiaries located abroad to COCOM-proscribed 

Host countries of subsidiaries understandably resent U.S. extra 
territorial controls as an infringement of their sovereignty. This 
resentment can be decreased by harmonization of pohcies. Where 
subsidiaries abroad conduct research and development, the United 
States stands to gain from the results. Therefore, it wouhl not be 
correct to assume that the establishment of subsidiaries abroad means 
only an outflow of technology fi'om the United States. 

An effort by the Government to review and regulate decisions by 
j)rivate firms to establish subsidiaries abroad (in effect, to substitute 
the Government's judgments for those of private managers) would 
move the Government far in the direction of major intervention in 
what has been traditionally considered an ai'ea of ])rivate decision- 
making. Moving in that direction is not justified, if we were to do so, 
we would j)robably experience retaliatory actions on the i)art of 
other major countries including some of oui' j)rincipal allies. However, 
in the case of munit ions list items, controls apply to all e\i)orts abroad, 
including those wholly owned subsidiaries or branches of American 
films, and controls are imposed on nuclear facilities wherever they may 
b(^ located. 


6.5 U.S. Government role in facilitating the contribution of technology 
to development. — Since the point 4 j)ro<z:ram, the United States has 
provided technical assistance to developint^ countries. This assistance 
has been provided through bilateral assistance })ro^rams and includes 
the training of many students from developing countries in various 
fields of science and engineering. Recently, a planning office has been 
established to outline operations for a new Foundation for interna- 
tional Technological Cooperation to be estabhshed in 1979 to assist 
developing countries. Most Foundation ])rogram areas will involve 
public sector technologies such as agriculture, health, and ])opulation. 
The United States has also supported multilateral programs, including 
those of the United Nations. Since much American technology, 
especially industrial technology, is in private hands, decisions on 
transfers through various mechanisms are made i)rimarily by the 
private sector. 

6.6 Private versus public sector interests. — The Government should 
and does control the transfer of technology of strategic significance 
as well as the transfer of weapons and military equi})ment. The pri- 
vate commercial orientation of U.S. technology does not significantly 
detract from the viability of controls. Although the private sector 
and the Government on occasion disagree about the implications of 
specific proposed transfer, the private sector does not challenge the 
need for the Government to exercise controls to protect our security 

Even though most license applications are processed promptly, 
significant delays sometimes occur, and it is possible that less critical 
items could be removed from control more rapidly than is sometimes 
the case. However, the essential character of governmental involve- 
ment does in general reflect an appropriate balance between private 
sector and public sector interests. 

6.7 U.S. restrictions versus development of allied military and indus- 
trial strength. — Present U.S. restrictions on technology transfer do not 
preclude our allies from acquiring technology necessary for conven- 
tional military strength, although delays in releasing advanced tech- 
nology sometimes occur. They may feel that such delays aftect their 
ability to field needed systems in a timely manner. 

Regarding military capabilities, technology sharing offers the means 
of avoiding waste and duplication among national defense research, 
development, and acquisition programs. VVe are increasing the extent 
of sensitive technology, including production technology, we are pre- 
pared to release in cooperative programs in NATO. Our willingness to 
move in this direction depends on the prospect that the cooperative 
programs will enhance the military effectiveness of the alliance with 
reasonable cost savings. NATO is currently conducting a study of 
measures that could ease legal and bureaucratic impediments to 
cooperation in all member countries. We will review its recommenda- 
tions carefidly. 

6.8 Leakages through third countries. — Since many advanced tech- 
nologies are diifused throughout the industrialized countries of the 
West, coordination of policies is needed to preclude the release by 
some countries of technologies which others believe should be with- 
held from Communist countries. This is, of course, the function of 
COCOM. As long as COCOM remains relatively effective, the risk 
that militarily significant technologies will move from the United 
States to Western Europe and Japan and then leakage to Communist 


countries will remain limited. This does not mean that all leakage can 
ahva^^s be precluded but rather that the problem can be contained. 
Leakag-e from developing nations to the Soviet Union is not a major 
problem since developing nations for the most part do not require the 
advanced technologies that are of greatest concern. 

\Yith respect to the possibility of leakage through cooperative 
agreements, activities under scientific and technical cooperative agree- 
ments with Communist countries generally involve basic research 
although some applied research is also involved, and the agreements 
are structured to avoid sensitive or proprietary information. Where 
technology is involved, exchanges are reviewed in advance, taking 
into account the usual export control strategic criteria. In the case of 
munitions list items, U.S. consent to third party transfers and non- 
transfer assurances from the recipient are required before any retrans- 
fer can take place. 

6.9 Should the United States limit technology transfers for politically 
and economically competitive reasons? — The United States has long 
favored an open international economic s^^stem, including an open 
s^-stem for technology transfer except in cases involving weapons 
systems, military equipment, or strategically significant technology. 
This has reflected the basic belief that our own economic interests 
are served by an expanding world econom^^ in which other countries 
are increasing!}^ able to buy our products, and in the case of tech- 
nology, b}" our being able to receive and utilize technological advances 
made abroad (rather than depend solely on indigenous advances). 
There are, of course, concerns about the economic effects of outward 
technology transfer; concern about effects on employment are dis- 
cussed below. 

To the extent that our leadership in various technologies is an 
important source of our political streno-th, it is generally more im- 
portant to insure continuing technological advances in the United 
States than to try to hoard technologies. In general, our political rela- 
tions with other countries can be strengthened through active tech- 
nological relationships. 

6.10 Correlation heVveen technology transfer and U.S. jobs. — It is 
not clear that the transfer of U.S. technology overseas has, historicalh', 
resulted in a net loss of jobs in the United States. The net effect over 
the years may have been to increase exports and jobs. Historically, 
relatively standardized technologies have been licensed, sold, or traded 
in exchange for market access or venture capital. At the time of their 
release, the technologies represented production processes for fairly 
mature j)roduct lines for which competitive production processes had 
been developed overseas. The release of such processes (to developing 
countries in particular) had hiitially been beneficial in spurring de- 
mands for U.S. capital goods, exports, and managerial services. 

Historically, the U.S. comparative advantage has been in tech- 
nology-intensive product lines. As rclativel}' sophisticated technology 
diffuses to other countries, demand for U.S. exports in specific labor- 
intensive products falls as other factors (wage rates, productivit}-) 
dominate and U.S. exi)orts of capital-technology-intensive manufac- 
tured goods continue to grow. Unless U.S. firms begin to license, sell, 
or otherwise translei- rccentl}^ devcloj^ed techniques — well in advance 
of competitive development of similar technologies elsewhere — U.S. 
transfer of technology will continue to have only a limited overall 
impact on loss of U.S. jobs. 

The United Slates is j)ai-licij)atiiii;- iii studies by the OECJD of the 
loiii^'-t^rm imi)act of techuolo;^y transfer to developiufi: countries on the 
economies and industrial structure of the present industriahzed 
countries. Coproduction of armaments is severely restricted, except in 
the case of our major allies. Where coproduction is undertaken, the 
alternative is frequently not the outriuht purchase of items manu- 
factured in the United States but production of a comj)etitive system 
or item of equipment desi^-ned by our allies. 

6.11 Should U.S. Government R. & D. he increased'^. — Government 
support of research and development is important for many reasons, 
and the President's budget requests call for our increase in support of 
basic research. The fiscal year 1979 request is for an 11-percent in- 
crease in basic research and a 6-percent increase in total research and 
development expenditures. 

Adequate support of research and development — by Government 
and the private sector in combination — is needed to insure continuin;^ 
technological advance, including advances in militarily significant 
technologies. Clearly, our security interests would not be well served 
if we relied primarily or exclusively on controls to sustain our relative 
military strength. Technological advances elsewhere might out- 
distance our own capabilities without sustained effort on our own part. 
In addition to maintaining strong research and develo})ment programs, 
it remains important to slow the rate of transfer of carefully selected, 
particularly sensitive, advanced technologies of military significance 
to Communist countries. Strong research and develojDment programs 
and effective export controls should therefore be vievved as mutually 
reinforcing rather than as alternatives. 

6.12 Evaluation of U.S. Government financial incentives to transfer 
technology abroad. — In general, the United States offers only limited 
incentives for the transfer of technology abroad. In the case of the 
Export-Import Bank, most of the exports supported by the Bank are 
capital goods and thus to a degree entail the transfer of technology. 
However, it is not appropriate to characterize the Bank's programs as 
'^incentives" to transfer technology abroad. Rather, the Bank's 
activities are relevant to the question of who will export the capital 
goods in question (the United States or a competing industrialized 
country). A recent study by the Treasury Department indicates that 
in the Bank's direct loan progTam, in 64 percent of the cases, the export 
would not have taken place without the loan. It is reasonable to assume 
that in a number of these cases, the business might well have gone to 
another countiy. 

The primary purpose of the Overseas Private Investment Corpora- 
tion (OPIC) is to stimulate flows of U.S. private capital and skills to 
friendly developing countries in support of their economic and social 
development. It does this by insuring eligible U.S. investments 
against the political risks of expropriation, war damages, and in- 
convertibility of local currencies. Eligible investments can take the 
form of either traditional equity contributions or assets such as patents, 
processes, and licenses. Pursuant to congressional directions, OPIC 
scrutinizes closel}^ projects involving advanced technology and de- 
clines to provide assistance if it concludes they might have undesirable 
efl'ects on the U.S. economy. 

In the case of tax policy, the U.S. objective — as far as influencing 
investment decisions of U.S. multinational firms is concerned — is to 


achieve tax neutrality between investment at home and abroad. 
Current and proposed U.S. tax poHcy comes very close to achieving 
this neutrality standard. 

The most important provisions favoring domestic investments are 
the Domestic International Sales Corporation (DISC) , the investment 
tax credit (which does not apply to foreign investment) , the accelerated 
depreciation of certain classes of domestic investments, and the limita- 
tion of foreign tax credits to the rate of U.S. corporate income tax. 
The most important provisions favoring foreign investment are the 
foreign tax credit, tax deferral on unrepatriated foreign profits, and 
creditability of income taxes paid to foreign subnational governments, 
while State and local taxes paid within the United States can only be 
deducted from taxable income. 

In proposals submitted to the Congress in January 1978, President 
Carter recommended that both DISC and deferral be phased out over 
a 3-year period. These provisions now roughly balance each other. 
The elimination of both would leave the overall impact of the remain- 
ing provisions very close to the neutrality standard. However, a num- 
ber of multinational enterprises have complained that their ability 
to conduct research and development on behalf of their foreign sub- 
sidiaries is being inhibited b}^ a recent IRS regulation which requires 
parent companies to allocate a portion of research and development 
expenses to their foreign subsidiaries for the purpose of research and 
development deductions against U.S. tax liability. They argue that 
the tax laws of many developing countries do not permit foreign sub- 
sidiaries to deduct the research and development expenses allocated 
to it but performed in the United States. In the view of these corpora- 
tions, the result is that the enterprise as a whole is deprived of a por- 
tion of its research and development deductions, and that an incentive 
lor innovation is thereby reduced. 

6.13 Should the U.S. Government encourage more effective means of 
technology transfer? — In general, there is no reason for the Govern- 
ment to encourage transfer or know-how rather than the export of 
])roducts. Technology licenses do not necessarily result in lower foreign 
exchange earnings over the long run than do exports of products. But 
neither is there a clear case that export of know-how would maximize 
U.S. benefits. In the case of weapons sj^stems, however, our security 
interests are sometimes best served through coproduction arrange- 
ments. This does not reflect a conscious choice of transferring tech- 
nology in preference to selling ])roducts but rather a recognition that 
allied needs can be met most effectively in this way. 

6.14 Under what conditions should the most effective means be vsed in 
transfer to the U.S.S.H.? — The Soviet Union has on a number of occa- 
sions sought turnkey facilities from the West. This approach involves 
one of the most efFective forms of teclmology transfer, and where the 
facilities do not have adverse implications from the stand|)oint of our 
security interests, it has been j)ossible to ap|)rove the necessary exports. 
Although effective, this is also a highl}' expensive approach. Where the 
Soviet Union, for reasons of its own, has sought technology through 
less efFective means, the U.S. Government has not tried to redirect 
the procurement to more efl'ective ap])roaches. It is not clear that 
any useful purpose would be served by this kind of intervention. 


6.15 Significance of technology imports from the East. — The United 
States imposes no restrictions on the importation of technology from 
Communist countries althou^'h tariffs do api)ly. Since 1964 (but with 
most of the activity occurring: since 1970), U.S. firms have pin-chased 
26 licenses, at an estimated cost of about $14 milUon, for tlie use of 
Soviet technology, mostly minin^^, metallurgy, medical equipment, 
and pharmaceuticals. This is small in com])arison with U.S. j)ayments 
of $434 million in license fees and royalties to foreign companies 
worldwide in 1975 alone. Nevertheless, there is a growing awareness 
that the Soviet Union has something worthwhile to offer. 

7. The Effectiveness of Existing Organizational Arrangements 
IN THE Executive Branch in Regulating Technology Trans- 
fers From the United States 

7.1 Adequacy of intelligence on foreign misuse of U.S. technology. — 
The broad flow of technology, the difficulty of determining actual 
misuse, and higher ])riority demands on intelligence capabilities are 
limiting factors. Nonetheless, U.S. intelligence does focus its attention 
on requiring information relevant to assessing the possible misuse of 
critical U.S. technology and has been successful in identifying sig- 
nificant cases of misuse in support of export control efforts. 

7.2 Adequacy of Western coordination of technology transfer con- 
trols. — In the past the United States has recognized that unilateral 
controls on technology transfers, including exports of advanced 
products, would be largely ineffective. For this reason, for almost 
three decades, the United States has cooperated in COCOM with 
other NATO countries and Japan in coordinating controls on exports 
to Communist countries. This coordination has been reasonably effec- 
tive. In any event, there is no realistic alternative course of action open 
to us. The effectiveness of controls is improved by refining the list of 
products and technologies subject to control. Periodic list reviews are 
conducted with this in view. They generally result in the deletion of 
some items which are no longer considered necessary to control and 
the addition of new products or technologies. The list reviews provide 
an opportunity to resolve possible disagreements over including or 
excluding certain items. It is frequently up to the United States to 
make the strategic case for retaining items on the list or adding new 

7.3 Adequacy of interagency coordination of controls. — The De- 
partment of State administers export controls on munitions list 
items; the Department of Commerce, on general purpose items (in- 
cluding dual-use items) ; and the Nuclear Regulatory Commission, 
on nuclear material, reactors, and certain components, and the De- 
partment of Energy, on nuclear technology and technical information. 
Each of the license issuing agencies receives advice from other inter- 
ested agencies, including the Departments of State and Defense. 
There may, of course, be disagreements about how significant any 
security im])lications are, and procedures have been established for 
resolving such issues at a high level w^hen they arise. 

The Nuclear Non-Proliferation Act mandates procedures, including 
an interagency reviewing mechanism. Export licenses are transmitted 
from the licensing agency to the other agencies participating in the 
reviewing process (State, Defense, ACDA, Commerce, Energy, and 


Each agency i)rovides its views as to whether the export or sub- 
sequent arrangement is in some way inimical to the interest of the 
United States inckiding the common defense and security. When a 
disagreement exists the case is referred to the Subgroup on Nuclear 
Export Coordination, and a mechanism exists for the resolution of 
disputes at higher levels when ao;reement is still not reached. 

7.4 Correlation between arms control volicy and ei/port controls. — 
ACDA has been an active participant in the review of export control 
pohcies, nonprolil'eration policy (which has an important bearing on 
nuclear exports), and conventional arms transfer policy. It participates 
actively in the review of proposed nuclear exports and conventional 
arms transfers and will participate in review of other exports which 
have significant arms control implications. 

7.5 Ojjtions for ccordinating policy on private commercial transfers 
of technology to the U.S.S.Ii. — As a general rule, comjnmies doing busi- 
ness with the Soviet Union seek advice from the Government con- 
cerning the relationship of their activities to broader national policies. 
In the case of specific proposed transactions the Department of 
Commerce provides advisory opinions upon request. The Government 
is informed in detail about all exports from the United States to the 
Soviet Union requiring validated licenses. This includes transfers 
of technology. 

Pursuant to article 4 of the recenth^ renewed 1972 U.S. /Soviet 
Agreement on Cooperation in Fields of Science and Technology, both 
j)arties encourage cooperation between their respective firms and 
enterprises. Although a number of article 4 agreements have been 
signed between U.vS. firms and Soviet enterprises, they are largely 
expressions of intent. Any actual transactions under these agreements 
are subject to export controls. 

8. The Adeqt-acy of Existing Legislation and Regulations with 
Respect to Transfers of Technology from the United States 

8.1 Aderniacy of legislation, regvlaHons, and procedures to identify 
strategic technology. — Existing legislation and regulations provide an 
adequate basis for the identificatioft of strategic technology to insure 
that national security im])lications are proj^erly considered by the 
Government. Strategically important technology is ]^rotected in 
several different ways. Som.e information is classified for seciu'ity 
reasons. Even unclassified information, ])roducts, and technologies 
are subject to ex})ort control regulations, although the Freedom of 
Information Act may have an effect in this case. The Arms Ex}>ort 
Control Act, Atomic Energy Act, Nuclear Non-Prolifcration Act, 
Mutual Defense Assistance Control Act, and Export Administration 
Act ])rovi(le an adequate legislative basis for necessary controls. This 
legislative authority has been translated into eft'ective reguhilions 
wliich are reviewed and modified peiiodically, ])articulai'ly as they 
relate to adchng and deleting s|)ecific items f]"om controls. 

8.2 Form and control of desirable technology transfer policy state- 
merits. — Basic ])olicy on technology transfer is set i'oi'th in the govern- 
ing legislation. Different Government departments do have different 
])crsj)cctives on what actions may best serve our security interests. 
Interagency arrangements provide a lull o])portunity for all points 
of view to be heai'd. Tliere is no way of iini)osing a rigid single point 
of view on all interested ag(Micies through a detailed policy statement, 


and it would be undosimble to aUenii)t to do so. Divei'sity of view |)oii\l 
is not evidence of lack of coordination. Indeed, such diversity is 
essential to achievement of a proper balance ol' all i-elevant factors. 

8.3 What types of items should be included on the murdtions list'! — 
The munitions hst is not a list of items with formal nomenclature 
but rather a list of 21 broad categories of equipment which is designed 
to include items ranging from small-caliber target ])istols to ecpii|)iiient 
or technical data for design and testing of nuclear weapons. 

The list is revised as necessary to keep pace witli advances in 
weapons technology. These broad categories help to prevent inad- 
vertent omissions which could occur in a detailed equipment list 
which Avould have to be updated continuously. At the same time, tlie 
Department of State, in consultation with Defense and Commerce, 
processes requests for commodity jurisdiction decisions on specific 
items to determine w^hether they are to be controlled by State or 

Any classification of items on the munitions list, such as lethal- 
nonlethal, sophisticated-simple, obsolete-modern, ofi'ensive-defensive, 
implies varying degrees of control. While these factors may bear on 
any given decision, neither the items nor the control process lend 
themselves to differing degrees of control. A simple .45-caliber pistol, 
designed in 1911, can become sensitive depending on its destination. 
Much electronic equipment is nonlethal but generally either pi'otects 
lethil equipment or multiplies its effects. Tanks and strike aircraft 
are usually considered archetype offensive v/eapons, but no modern 
army would willingly fight even a clearly defensive war without both 
tanks and strike aircraft. 

Given the ever present danger of illegal diversions and of unauthor- 
ized transfers to third countries, all munitions list items and technical 
data on them must be subject to equal control and illegal acts involving 
them subject to the same stiff penalties. The existence of some ty])e 
of secondary, less stringent controls would inevitably weaken the 
licensing system. 

9. The Possibilities for International Agreements With Re- 
spect TO Transfer of Technology 

9.1 What should the United States do to promote international co- 
operation in restraining arms sales, coproduction agreements, and other 
transfers of technology considered destabilizing or detrimental to U.S. 
interests? — The United States has initiated a dialog with key arms 
supplier nations. For example, we have been holding talks vith the 
Soviets. We felt that it was important to include the Soviet Union, 
the vxorld's second leading arms supplier, in the multilateral restraint 
effort. The United States has also been in touch with the principal 
Western suppliers on a continuing basis. We have explained our 
restraint policy in detail to the principal suppliers and have sought 
their cooperation in working toward multilateral restraint of con- 
ventional arms transfers. 

With respect to recipients, we support all approaches which lead 
toward restraint by ])urchasing nations. Regional limitations, such as 
the 1974 A3^acucho Declaration b}^ the leaders of eight Latin American 
nations, reaffirmed in June 1978, represent the type of effort which 
we wholeheartedhr sup}:)ort. Reaching any multilateral agreement or 
arrangement on restraint will be difficult and will take time to achieve. 


The subject involves many vital political, economic, and security 
interests of both suppliers and recipients. However, we are hopeful 
that the process, once begun, will gain momentum and that our 
efforts will lead to multilateral cooperation. 

In the case of dual-use items and technologies with extensive civil 
applications, controls may be desirable for items and technologies 
having particularly significant militar}^ applications. However, the 
case for unilateral national action is weak. Most technology is so 
widely diffused in the industrialized countries that unilateral controls 
would be ineffective. Exports of items for apparent civil use are con- 
sidered part of normal trade, with far less political and military 
significance than exports of arms. In the absence of international 
agreement on export controls, the question is raised as to why our 
exporters should be denied profitable sales opportunities not denied 
to their competitors in other countries. 

It is important to persuade our allies in COCOM to impose parallel 
controls on exports to the East of dual-use items we believe warrant 
control. They do respond positively to well reasoned presentations to 
sup])ort proposals for controlling carefully selected, well defined items. 
Several Western countries do not have legislative authority to control 
the export of technical data. Legally enforceable controls are more 
orderly and clear cut. However, the absence of legal authority does not 
mean the absence of control capability. The advanced technologies 
of greatest concern are held by only a relatively few companies. These 
companies wish to cooperate with their governments in the interests 
of security. Therefore, even in the absence of a legal compulsion, they 
voluntarily control the transfer of technologies recognized to be of 
security significance. 

Most significant transfers of technology also involve the export of 
])roduction equipment. Tangible equipment is easier to define and to 
control than is technology. Therefore, it is particularly important to 
reemphasize and refine internationally agreed controls on unique and 
critical items of production equipment. 

9.2. Code of conduct for technology transfer to developing countries. — 
Developing countries are advocating a code of conduct on the transfer 
of technology to im])rove the ability of their enterprises to acquire 
and utilize relevant technologies on less costly and restrictive terms. 
Together with stringent national regulations of technology transfers 
and multinational operations generally, as well as proposed revisions 
in the Paris Convention for the Protection of Industrial Property, 
the code of conduct is part of a broad effort by developing countries 
to restructure customary private practices and international ground 
rules which they believe retard their growth. 

Negotiations on a code began in 1975 in an expert group under U.N. 
auspices. Although only limited progress has been made in drafting 
a code, the developing comitries successfully sponsored a resolution 
in the United Nations General Assembly (the United States reserved 
its position) calling for a conference in the fall of 1978 to complete 
action on the code. 

The ])rospects for agreement on a full text by fall arc dim. Among 
the outstanding issues are whether the code will be voluntary or bind- 
ing and whether obligations proposed for multinationals will be bal- 
anced in any way by the inclusion of obligations recognizing the 
interests of technology suppliers as well as responsibilities addressed 


to governments. The United States suf)ports the adoption of ap])i()- 
priate voluntary guidelines which are balanced in substance and ad- 
dressed to all parties. Our objective is a code that would enhance the 
mutual confidence of parties to technology transactions and to im- 
prove the overall transfer climate. Such a code could be of mutual 
benefit. A one-sided, highly restrictive code would be self defeating 
from the standpoint of the developing countries' interests. In de- 
veloping our approach to this matter, we are working closely with 
other industrialized countries in the OECD. 

9.3 Evaluation of U.N. Conference on Science and Technology jor 
Development. — Efforts of developing countries to achieve growth have 
been hampered by the lack of an adequate scientific and technical 
base. Improved indigenous scientific and technical capabilities as well 
as improved access to existing technologies have become important 
to the developing countries. Considerations such as these led the U.N. 
General Assembly's Seventh Special Session (1975) to call for a U.N. 
Conference on Science and Technology for Development. The confer- 
ence will be held in Vienna in late summer 1979. 

U.S. planning for participation in the conference is now wqW under- 
wa}^ In addition to developing its own approach, the United States 
is participating in the work of the U.N. Preparatory Commission for 
the Conference and in discussions with developing countries at meet- 
ings of the U.N. Regional Economic Commission and in meetings in 
the OECD with other industrialized countries. 

9.4 Evaluation of international arrangements to facilitate and control 
nuclear transfers. — The principal international arrangements for facili- 
tating and controlling nuclear transfers are: 

— The arrangements established through the International Atomic 
Energy Agency (established in 1956) which both facilitate and 
safeguard nuclear transfer; 
— the Limited Test Ban Treat}^ which precludes nuclear weapons 

tests except for underground tests; 
— the Non-Proliferation Treat a^, which precludes nonnuclear weap- 
ons states from acquiring nuclear wea])ons and includes an under- 
taking that all parties will facilitate and have the right to partici- 
pate in the fullest possible exchange of equipment, materials, and 
scientific and technological information for the peaceful uses of 
atomic energy; and 
— the Treaty of Tlatelolco (Latin American Nuclear Free Zone). 
In addition to the foregoing, major nuclear suppliers reached agree- 
ment in September 1977 on certain guidelines respecting future 
transfers. Currently, some 40 countries are participating in the Inter- 
national Nuclear Fuel C^'cle Evaluation which is exploring ways of 
making nuclear power available without the increased risk of further 
proliferation of nuclear weapons inherent in certain advanced tech- 
nical developments. Negotiations looking toward a comprehensive 
nuclear test ban are also underway. 

If these are successful, a further step will have been taken toward 
establishing an international regime within which the benefits of 
nuclear power can be achieved and the risks of further proliferation 
of nuclear weapons held to the minimum. As this summary suggests, 
the development of international arrangements in this field has con- 
tinued over the past two decades. We expect that this evolutionary 
process will continue. 


(Prepared by the Congressional Research Service of the Lii)rary of Congress) 


Con^Tess has expressed gro^^mg• concern during the last few 3'ears 
regarding the far-reaching efforts of U.S. exports and imports of 
technology. In 1977 several legislative provisions were enacted re- 
quiring the executive branch to study and report to Congress on 
various aspects of U.S. technology transfers. Section 24 of the In- 
ternational Securit}' Assistance Act of 1977 (Public Law 95-92, 91 
Stat. 614, approved August 4, 1977) directed executive branch 
attention to the national security and military implications of inter- 
national technology transfers. 

Sec. 24 (a) The President shall conduct a comprehensive study of the policies 
and practices of the United States Government with respect to the national 
security and military implications of international transfers of technology in 
order to determine whether such policies and practices should be changed. Such 
study shall examine — 

(1) the nature of technology transfer; 

(2) the effect of technology transfers on L^nitcd States technological 

(3) the rationale for transfers of technology from the United States to 
foreign countries. 

(4) the benefits and risks of such transfer?; 

(5) trends in technology transfers by the United States and other countries; 

(6) the need for controls on transfers of technology, including controls 
on the use of transferred technology, the effectiveness of existing end-use 
controls, and possible unilateral sanctions if end-use restrictions are violated; 

(7) the effectiveness of existing organizational arrangements in the 
Executive branch in regulating technology transfers from the United State?; 

(8) the adequacy of exi&ting legislation and legulations with respect to 
transfers of technology from the United States; and 

(9) the possibilities for international agreements with respect to transfers 
of technology. 

(b) In conducting the study required by subsection (a), the President shall 
utihze the resources and expertise of the Arms Control and Disarmament Agency, 
the Department of State, the Department of Defense, the Department of Com- 
merce, the National Science Foundation, the Office of Science and Technology 
Policy, and such other entities within the Executive branch as he deems necessary. 

(c) Not later than the end of the one-year period beginning on the date of 
enactment of this section, the President shall submit to the Congress a report 
setting forth in detail the findings made and conclusions reached as a result of the 
study conducted pursuant to subsection (a), together with such recommendations 
for legislation and administrative action as the President deems appropriate. 

On August 21, 1978, the President submitted his response to Con- 
gress. This report will assess the Executive's compliance with the 
assigned tasks in general terms, make observations regarding Execu- 
tive responses to specific questions raised in the act, note other 
related studies, and provide some overall comments. 



A. The Task Set for the Executive Study 

As noted by Chairman Clement J. Zablocki: 

The Congress mandated under section 24 of the International Security- 
Assistance Act of 1977 a comprehensive Presidential study of U.S. Government 
policies and practices with respect to the national security and military implica- 
tions of international transfers of technology. The congressional intent in mandat- 
ing this study is to obtain information necessary to understand the many complex 
issues relating to technology transfer, and if necessary, to consider appropriate 
changes in legislation governing international transfers of technology. 

At my request, the Congressional Research Service of the Library of Congress 
has prepared a study of the issues raised in section 24 of the International Security 
Assistance Act of 1977. The purpose of the CRS study is to identify further the 
range of issues and problems relating to international technology transfer. ^ 

The Executive report transmitted by President Carter acknowledged 
the task set by Congress. 

This report was prepared in response to section 24 of the International Security 
Assistance Act of 1977. The outline of the report corresponds to the provisions of 
Section 24. The specific questions and issues covered were drawn from the report 
entitled "International Transfers of Technology: An Agenda of National Security 
Issues" prepared by the Congressional Research Service (CRS) for the House 
Committee on International Relations. In addition, discussions were held with the 
staff of the CRS and the committee. ^ 

From the specific study requirements mandated by the International 
SeciH'ity Assistance Act of 1977, elaborated by the House Committee 
on International Relations and the Congressional Research Service, 
and acknowledged by the President's response, it seems clear that the 
intent of Congress was clearl}^ expressed and accepted as the basis for 

B. General Compliance of Executive Study to Congressional 


The task required of the six executive agencies by section 24 of the 
International Security Assistance Act of 1977 was complex and de- 
manchng. A full and detailed reponse to all of the pertinent issues was 
bcA^ond reasonable exj)ectation for a l-3^ear effort. Therefore, this 
assessment will only make general comments concerning significant 
policy statements and major shortfalls or omissions in the Executive 

1. comprehensiveness 

Section 24 mandated a ''comprehensive study" of policies and prac- 
tices of the U.S. Government in regard to the national sec\n*itv and 
military implications of international transfers of technology "in order 
to determine whether such policies and practices should be changed." 
This wonhng indicates that Congress exj)ecte(l an analytical, probing 
re|)ort of reasonable breadth and depth. The j)urpose was to determine 
whether any U.S. policies and practices should be changed and also 
to indicate whether Congress should take an initiative in clianging 
such policies or practices by legislation or other action. 

Intornationnl Trnnsfor 
■e print. I'roparod by tlie 
Feb. 13, 1978, p. IIL 

1 U.S. Congress. Ilousfi. Committee on Intornationnl Relations, 
of TechnoloK^y : "An Agenda of National Security Issues." Coniniitt( 
Conjrressional Research witl» foreword by Chairman Zablocki. 
(Hereafter rcH'rred (oas Atreiida.) 

i Traiismlllcd to Cori>,'ress Aii«. 21, 1978. ])y President Jimmy Cnrter, "Report to the 
CoiiKress In Kespons(; to Section 1*4 of the Internal Security Assistance Act of 1977." 
(Hereafter, Report.) 


Although the report a(l(h'esses most of the issues raised by the hiw 
and by the CRS agenda of issues, the hick of data and analytical depth 
indicate that this report does not reflect a com|)rehensive study. A 
considerable portion of the text is taken by des(;rij)tion of existin*^ 
organizations and })rocedures for controlling U.S. technology exj)orts 
and asserting their adequacy and propriety. Significant j)olicies are 
overlooked or given minimal treatment. 

The document transmitted by the executive branch i)rovi(les few 
insights to the following issues that were raised by Chairman Clement 
J. Zablocki of the House Committee on International Relations: 
— The economic and social impact of the transfer of technology on 

the recipient countries; 
— Impact on the economies of the recipient countries of restrictions 
on the transfer of dual purpose technologies (technologies with 
civilian and military applications) ; 
— Impact of the restriction on the transfer of dual-purpose tech- 
nologies on the military capabilities of potential adversaries; 
— Effect of the transfer of technology on the U.S. economy and on 

U.S. international competitiveness; and 
— Advantages and disadvantages of U.S. participation in inter- 
national scientific and technological activities. 


The report gives no indication of specific participation in a study 
or in the report by the Arms Control and Disarmament Agency, the 
Departments of State, Defense, Commerce, and Energy, the Office of 
Science and Technology Policy, and the National Science Foundation, 
which was required by the act. There is also no indication whether 
any or all of these agencies concurred with what the President reported. 

However, since the report was signed by the President, it can be 
taken as a definitive summary of the administration's thinking on 
international transfer of technology. As such, it provides a baseline 
for further congressional consideration of this matter. 


Congress focused special attention on the need to examine tech- 
nology transfer from a broad context of national security. The Presi- 
dential report arguably does not respond to this guidance. Rather it 
stresses Government control over the transfer of military technology 
and gives little attention to the transfer of those civil technologies 
which could affect future balances of industrial and military strength. 
Likewise, the full impact on U.S. security of modifications in the 
economic, militaiy, and social systems of countries receiving U.S. 
technology and in U.S. economic competitiveness, industrial strength, 
employment rates, and the research environment are not fully 


The House Committee on International Relations identified the ma- 
jor areas of concern in the study of technology transfer as : North-South, 
West-West, and West-OPEC. These global areas were subordinated in 
the study to East-West technology transfer. Moreover, in considera- 
tion of East-West transfers, primary attention was given to U.S.- 


U.S.S.R. relations. Many important considerations that were not 
given attention were specifically of interest to the Congress, as spelled 
out in the i'ormal and informal guidance prior to the study. 


Congress emphasized its need for information and analysis on 
transfers of technology involving people and systems as well as those 
concerned with hardware, data, and technical information. The 
Department of Defense Science Board study (the ''Bucy Report") 
also emphasized the importance of such active forms of technology 
transfer. The executive report summarizes the gradations of effective- 
ness which were described in that rej)ort but takes the basic position 
that '4'rom the stand [)oint of national securit^^ interests, the mechanism 
of transfer of technology is of secondar}' importance." The report 
reflects the Government's ])rima]y concern with controlling the 
export of critical defense technologies and })rovides few insights on the 
means of transferring technology. If the report had fully treated the 
positive aspects of certain technology exports and imports, it might 
have been moi-e inclined to evaluate the means by which technology 
Clin best be transferred. 


Although section 24 called for a stud.y that would facilitate deter- 
minations of whether U.S. technology transfer ])olicies and procedures 
should be changed, there is little suggestion in the report that Congress 
should consider amending any existing laws or passing any new law. 
In a few instances, the report indicates that some changes might be 
made and declares that the Executive is looking into such ])ossibilities. 
The report's general tenor implies that current policies and pro- 
cedures are working reasonably well and that there is little need for 
congressional concern or involvement in the issue of international 
technology transfer. 

C. Specific Observations on Individual Questions 

Section 24 sets out nine general topics of inquiry, and the agenda 
sj)elled out specific questions implied by these general topics. Some 
specific observations are made below on the Executive resi)onses to 
each of these nine toj)ics:^ 

1. the nature OF technology transfer 

The resj)onse rej)resents a good desci'i[)tion of factors which sliould 
be incorporated into a statement of U.S. j)olicy regarding technology 
transfer. The (h'flnition given is better than some definitions of tech- 
nology transfer in that it goes beyond concrete technology transfers to 
include such factors as flows of scientific and technical information 
and recij)ient's capacity to absorb technology. The report lists several 
U.S. national interests that may be affected by technology transfers 
and refers to some basic factors for dinVrentiating cases of technology 
transfer: The [)olitical and economic status of the recipient; whether 

• Speclflc page references are not mndo to each reference In the excculivo report as tbey 
are organized by the nine toplca and readily Identifiable by reference to the report. 


the technology involves defense ailicles oi* services, civil urticles 
or services, or has j^otential a|)j)lications for both; whether end items 
or know-how are involved ; and whether nuclear technoloji,y is involved. 
Rather than ])rovidini2,- a comprehensive statement of the nature of 
these types of transfer, the report discusses U.S. ex|)ort contiols. This 
section tends to indicate that current ])ractices and ]|)olicies are effec- 
tive and suitable for U.S. national security interest, without identifyinji; 
any major problems. The discussion does not provide an inventory of 
major U.S. policies regarding technology transfer for example, the 
elements of U.S. policy of promoting opportunities to increase the 
variety and volume of U.S. exports, and of promoting certain transfers 
that vrill help our less developed friends and allies strengthen their 

In specific response to the legislative mandate, there are some 
omissions. There is insufficient information in topic 1 on the nature 
of technology transfer to provide a basis for analysis of U.S. policies 
and various alternatives. Also there are no criteria given by which 
U.S. technology transfer policies could be measured for compliance 
with national security interests and by w^hich needed changes could be 
identified. No suggestions are given to facilitate improvements in the 
measurement of technology transfers and of the domestic, foreign, 
and international consequences of such flows; for example, the impact 
on U.S. employment, impacts on resource releasing abilities of re- 
ceiving countries, or impacts on military and civilian advance. It 
seems that a comprehensive Government study of technolog}^ transfer 
would develop, in cooperation with industry, a system for measuring- 
technology flows and their impact on U.S. national security and 
foreign policy. Also, it can be argued that the report is not responsive 
when it maintains that the difficulties of measuring technolog}^ trans- 
fer information flows preclude measurement of such flows. Numerous 
studies have been made of this subject with significant developments 
in at least concept formation. The issue of appropriate technology 
could have been discussed in detail and additional attention to the 
special issue of technology transfer flow^s to third and fourth tier 
developing countries would have been responsive to congressional 

Concerning nuclear technology, the study notes the special controls 
under the Atomic Energy Act of 1954 and, most recentl}^, under the 
Nuclear Non-Proliferation Act. The administration says it is too 
early to judge the effect of the new procedures under this legislation. 
Of this, the report says: 

* * * Given the very recent nature of the legislation, it has not yet been 
possible to analyze the full impact of the new controls. These controls reflect, 
in particular, concerns about the proliferation of nuclear weapons. The conditions 
imposed are designed to provide safeguards against proliferation or other military 
use of nuclear materials or equipment. 

In an effort to lend credibility to its polic}' of controlling' nuclear 
exports in order to discourage the development of plutoniuni fuel 
cycles, including fast breeder reactors, the executive branch has 
sought to restrict the development of such reactors in the United 
States. An evaluation of this self-denying measure as a method of 
implementing a policy of blocking the spread of nuclear weapon 
capability, would be important to a study of nuclear technology 
transfer controls. 


The study mentions that an interagency Subgroup on Nuclear 
Energy Coordination of the National Security Council's ad hoc 
Group on Non-Proliferation reviews proposed nuclear exports. It also 
calls attention to an ad hoc NSC Technology Transfer Group "to 
coordinate implementation of planned improvements in the export 
control system." The stud}^ further mentions that an interagency task 
force chaired by the Department of Defense is examining ways of 
identifying and placing special emphasis on controUing critical tech- 
nologies and associated products. Although no further details are 
given about these ad hoc bodies, additional information would seem 



The President's report indicates that technology transfers are less 
threatening to U.S. technological superiority than is a reduced rate 
of U.S. technology innovation. Of this it says: 

In the case of both weapons-related and dual-use technologies, it should not 
be assumed that efforts to retain specific technologies in the United States would 
ensure technological superiority. Such efforts alone might be counterproductive. 
The temptation to rely on existing technology, coupled with decreased government 
research and development funding, might lead to a slowing of efforts directed 
toward the research, development, and continuing technology innovation that 
are essential to continued U.S. technological superiority. It is under such cir- 
cumstances (rather than as a result of the transfer of technology abroad) that 
loss of United States technological superiority might occur. 

In another section of the study, it is stated that, 'There is little 
evidence to indicate that present U.S. controls have the effects of dis- 
couraging innovative effort on the part of U.S. industry." However, 
these judgments are not supported in the report by data or case 
studies. Also absent are data on the levels of U.S. efforts in research, 
development, and technological innovation as compared to other 
advanced countries (for example, the Soviet Union, Japan, Federal 
Republic of Germany), although it indicates that these are key factors 
in technological superiority. 

The report does not undertake an overall assessment of the status 
of U.S. technology, although it does report the concern held by the 
American Association for the Advancement of Science about ''the 
decline of U.S. technological superiority," and quotes Under Secretary 
of Defense Dr. Wilham Perry as saying, "The existing qualitative edge 
of deployed NATO equipment can be expected to degrade as the 
Soviets replace de])loyed equipment." Although several areas of 
technology are mentioned in which the United States retains supe- 
riority, the report says that most new Soviet equipment is on a par 
with correspon(Hng NATO equipment, and mentions no area of 
technology in which the Soviet Union or other nations may liave an 
advantage over the United States. It discounts claims that the United 
States is losing technological suj)eriority by saying the conce])t is 
inexact. Of this it sa3's: 

* * * There are no precise measures of the relative overall technolog cal strength 
of varfous countries, and relevant data are frequently not available. The problem 
is especially difficult where the comparison involves scientific attainment and in- 

And also: 


* * * On the basis of such indicjitofs, it is fair to say that the United Stn.t(,'s re- 
tains important technological (qualitative) advantages in a number of important 

* * * an examination of the state of United States and PiUropean science and 
technology * * * suggested less vitality in western science and technology today 
than in the 1950's and 1900's. Nevertheless, there was no suggestion that the 
West's position in science and technology, capable of outstanding achievements in 
certain fields, remains hindered by a system which tends to discourage tech- 
nological innovation. 

A careful evaluation of the comparative technological postures of the 
United States and the Soviet Union, including an assessment of trends, 
could be undertaken as one yardstick against which ofTicial decisions 
on technology might be made. 

The report lacks a comprehensive analysis of the status and trends 
of U.S. technological superiority, technology transfers, technological 
innovation, and the relationships among these factors. 

Various military and economic advantages associated with the ex- 
port of U.S. military or strategic technology are discussed in the 
study, but the specific impacts of these transfers on U.S. technological 
superiority are not examined. There is no summary of the impact 
of w^eapon sales and coproduction agreements on U.S. technology. 
Exports of dual-use technologies (those with civil and military applica- 
tions) are, according to the report, "largely determined by judgments 
made by private concerns." Still remaining is the issue raised by 
Congress of the ' 'effect of technology transfers on U.S. technological 

In addressing nuclear weapons technology, the study says that 
SALT II controls on technology transfers wall not undermine the U.S. 
technological position vis-a-vis the Soviet Union or other countries, 
but it does not refer to clauses in the agreements which may limit or 
prohibit the transfer of w^eapons or technolog}^ from the United States 
to its allies. Such controls may not affect U.S. technological status 
but could degrade the security position of the United States by limit- 
ing improvements in the military posture of our allies. However, it 
is recognized that arms control tracleoffs could justify or compensate 
for such restrictions within the context of the SALT II agreements, 
assuming they are eventually completed. 

The President's study notes that all significant nuclear cooperation 
must be under the auspices of either a bilateral agreement for coopera- 
tion or the International Atomic Energy Agency. The most sensitive 
nuclear technologies (uranium enrichment, spent fuel reprocessing, 
and heavy water production) may not be exported except as provided 
in an agreement of cooperation or with authorization of the Secretary 
of Energy. The report does not discuss the effect of U.S. nuclear ex- 
ports on U.S. nuclear technological standing. 


In this section the administration discusses reasons for governmental 
restrictions of technology exports from the United States, briefly 
mentions "the traditional reluctance of the Government to intervene 
in private commercial transactions unless clearly necessary," and 
describes certain reasons for exporting U.S. technolog}^ Concerning 
the latter, the report makes the following five points : 


(1) A limited degree of foreign influence can be achieved by- 
exporting militar}^ weapons and equipment ; 

(2) Transferring production know-how through licensed manu- 
facturing agreements can help allies and friendly countries 
achieve enhanced military capabilities at an earlier time than 
might otherwise be possible ; 

(3) The primary motivation of military technology exports 
''has been and remains to strengthen securit}^ relationships of 
direct importance to the United States and to improve the mili- 
tary capabilities of our allies"; 

(4) In a few cases, foreign policy goals can be advanced and 
foreign relations can be improved by transferring various tech- 
nologies; and 

(5) A function described in the International Atomic Energy 
Agency is to promote the peaceful use of nuclear energy worldwide 
and to ''foster the exchange of scientific and technical informa- 
tion" to that end. 

However, the study does not examine the basic, general rationales 
for the transfer of technology from the United States to foreign 
countries. That such rationales exist is made evident by the fact that 
the U.S. Commerce Department conducts trade shows, technology is 
exported under foreign assistance programs, and preferential treat- 
ment given some technology exports by the U.S. Export-Import Bank 
and the Overseas Private Investment Corporation. A discussion of 
U.S. rationales for technology transfers might suggest the need for a 
positive and coordinated policy supporting the export of certain tech- 
nologies. It would seem appropriate for the administration to have 
discussed the effect of U.S. technology exports on the economic 
strength and industrialization of our allies and friendly countries and 
the effect of those qualities on U.S. national security, if such factors 
are involved in U.S. rationales for exporting technology. 

The report defends the U.S. policy of not using technology transfers 
for the improvement of relations with adversaries: 

Military technology is not considered available for use as a means of improving 
relations with possible adversaries. 

In the case of other technologies of potential strategic significance * * * improve- 
ment of relations with the countries of concern may sometimes result but has 
not been a primary consideration. 

Later in the study, the position is taken that, "In general, there is 
no reason to encourage the transfer of know-how rather than the 
export of products." This position appears to contradict certain U.S. 
l)olicies that encourage technolo2:y exports (primaril}^ for the develop- 
ment of friendly LDC's).^ 

This section of the report sheds little light on the effect on U.S. 
interests of Soviet technology transfer relationshi])s with developing 
countries. It discusses none of the dangers, ^^hich have been seen by 
Congress, in Soviet military assistance relationships and says Soviet 
economic assistance and civil technology transfers are not, in and of 
themselves, destabilizing: 

* Tffhnolojry transfers nro onrourncpd by certain foreign economic assistance and security 
assistance programs, NATO standardization programs, and by some lOximbanlv actions. 


To the extent that such (civil) transfers may make a teal contribution to the 
development of particular countries, there is no reason for the United States to 
consider that its own interests have been harmed ( von though such transfers are 
fiequently designed for political impact and to provide an underpinning for client 

As for dual-use technologies, which include nuclear energy, according 
to the report, the Government may intervene in reviews and occa- 
sionally in decisions of private firms to transfer technologies. 

In discussing transfers of dual-use technologies of strategic signifi- 
cance, the report fails to note a rationale for such transfers and instead 
describes extensive internal governmental reviews under the leadership 
of the Departments of Commerce and State for considering the risks 
of military uses of a proposed transfer which might be detrimental to 
national security interests. ''Lack of evidence that the recipient per- 
ceives a military need for the technology is not regarded as removing 
the risk of military use." On the other hand, the report also says 
experience shows credence can usually be given to assurances of civil 

Concerning transfers of nuclear technology, the report describes the 
functions of the International Atomic Energy Agency in fostering 
exchange and in detecting diversion of nuclear materials for military 
purposes. It mentions the dual purposes of the Non- Proliferation 
Treaty to prevent military use while encouraging peaceful use of 
nuclear energy. However, it does not assess the effectiveness of these 
measures in preventing use of nuclear power technologies to acquire 
nuclear weapons. 


The discussion of topic 4, the benefits and risks of technology 
transfers, probably best illustrates the general deficiencies in the study. 
Logically, the authors mio-ht have begun by addressing the central 
question: What are the major benefits and risks of technology transfer? 
In attempting to answer this central question, thc}^ might have arrived 
at the comprehensive study mandated by the law. Instead, the com- 
ments in topic 4 consist mainly of short, unsubstantiated generaliza- 
tions. The comments on various aspects of the subject appear not to 
be integrated into a unified and comprehensive analysis. 

Taken together, the individual comments seem to suggest that the 
risks of technology transfers are either nonexistent or quite limited. 
If this is the conclusion of the authors, some attempt needs to be 
made to counter the arguments of many observers that there are con- 
siderable risks. For example, some critics of current policies main- 
tain that the export of modern industrial techologies is harmful to the 
domestic economy and to the U.S. competitive position in international 
markets. This risk is not dealt with in topic 4 (though it is referenced 
briefly elsewhere in the report). Similarly, many critics of present U.S. 
policies maintain that militarily significant technologies are being ex- 
ported to potential adversaries. The response of the report is that the 
risk is not great because such technologies are subject to licensing. 
No effort is made to provide evidence to the reader that the licensing 
process is effective. 


The report states that ''In addition to mihtary factors, pohtical 
and economic factors are relevant in judging the relationship of a 
proposed transfer of technolog}^ to our national security." But it does 
not explain what kinds of political and economic factors are considered 
in the export control process or how the economic benefits and risks 
of civilian technology transfer can be taken into account under present 
laws and regulations. 

The statement on standardization of allied militar}' equipment 
does not address the possible risks of sharing U.S. military technology. 
For example, does standardization increase risks of disclosure of mili- 
tar}^ secrets? 

The evaluation of U.S.-U.S.S.R. cooperative programs includes no 
discussion of complaints from some U.S. participants that the U.S. 
side is benefiting less than the Soviet side. The statement on transfers 
of hydrocarbon technology to the U.S.S.R. falls short of being an 
evaluation. It does not state what kinds and how much h^xlrocarbon 
technology has been exported; it does not assess the national securit}^ 
implications; nor does it explain why procedures for controlling this 
technology were recentl}^ changed. The report's treatment of nuclear 
technology transfers is brief and general, and contains little discussion 
of the benefits and risks of nuclear transfers. Nor does it reflect the 
abundance of information, anah^sis, law, and regulation available 
on this subject in congressional, executive, and non-Government 

The report states that exports of nuclear reactors using slightly 
enriched uranium for fuel do not pose a significant proliferation threat, 
provided that care is taken in the selection of the recipients, that the 
recipient has agreed to adequate controls, and that the export takes 
place under international safeguards. This is an interesting statement 
because it implies that the administration might choose not to permit 
transfer of nuclear energy technolog}^ to some states. The report then 
describes U.S. controls over export of nuclear materials and com- 
ponents. It mentions unspecified proliferation dangers in the spread 
of certain sensitive nuclear technologies and says U.S. policy is not to 
authorize export of facilities associated with these technologies and to 
urge other suppliers to exercise restraint. 

Of nine suggested questions on this topic in the CRS report, the 
President's report does not discuss eight at all, and only indirectly 
discusses the remaining one, as shown in table I. 


Table I. — Coverage by the President's report of questions posed in item 4.0 of CHS 
report on international transfer of technology 
CRS Question President's report coverage 

(1) What is the link between nuclear technology Not discussed, 
transfer and proliferation? 

(2) How does proliferation affect U.S. military Do. 

(3) Under what conditions does proliferation affect Do. 
U.S. military security? 

(4) How would proliferation by specific countries Do. 
affect U.S. military security? 

(5) How dependent are other countries on trans- Do. 
ferred nuclear technology? 

(6) What are foreign reactions to U.S. regulation of Do. 
nuclear technology transfers? 

(7) What are foreign policies of other countries for Indirectly discussed in con- 
control of nuclear technology transfers? nection with information 

on the Nuclear Supphers 

(8) What is the effect of foreign nuclear technology Not discussed, 
transfer policies and actions on U.S. security? 

(9) What is the effect of technology transfers for Do. 
uranium mining? 

The treatment of the effects of technology transfer controls on 
innovation, under topic 4 (benefits and costs) of the President's 
report, has some implications for nuclear technology. The report says 
there is little evidence that present U.S. controls discourage innovative 
effort by U.S. industry because the controls are centered on a single 
group of countries, the Communist countries. It then conjectures: 

If an effect were made to preclude the transfer of technology to non- Communist 
countries as well, it is likely that the effect on innovation within the U.S. would 
be stultifying; with continuing reliance placed on increasingly obsolescent tech- 
nologies (although this has been avoided in the case of sensitive nuclear techniques). 

Continuing, the report says that U.S. export controls may stimulate 
some countries to develop and produce the embargoed items in- 
digenously and might thereby cause a diversion of foreign resources. 
However, an em^bargo would remain useful only if it were periodically 
revised to cover new advances. This official statement of the President 
is important if one applies the reasoning to the possible cutoff of U.S 
nuclear transfers to those countries v»'hich will not agree to conditions 
of the President and of the Xuclear Xon-Proliferation Act. Will such 
embargoes stimulate those countries to develop indigenous nuclear 

The discussion in this section barely touches the complex issues 
involved with transfers of technology in the form of hardware and 
information to the People's Republic of China (PRC). The limited 


comments are outdated because it is now clear that the People's 
Republic of China is anxious to proceed with liberal technology 
transfers on a number of levels including exchange of personnel, 
importation of hard goods, and cooperation with foreign enterprises of 
various kinds. Since the President's science adviser and several high 
level science and technology officials recently visited China, much more 
information should be available. There are far-reaching political and 
security implications of the relationships between the United States 
and the People's Republic of China that are intertwined with the issue 
of technology transfers. 

The report's statement that ''The same ground rules that appl}^ to 
the Soviet Union and other Communist countries apply in the case of 
the People's Republic of China," also appears to have been overtaken 
by events. With the new procedures for administering controls on 
exports of oil and gas technology to the U.S.S.R., the People's Re- 
public of China appears to be receiving better treatment than the 
U.S.S.R. This would be an appropriate place to discuss whether the 
various Communist countries should receive differential treatment. 
Differential treatment would appear to be consistent with the pro- 
visions of the Export Administration Amendments of 1977. The 
Executive may not have wished to give more than a safe, noncon- 
troversial answer on what is or can be a sensitive subject in a ])ublic 
report. However, the subject of U.S. technology transfer to China is 
one of considerable political importance that should be explored in 
depth, with a full appreciation of its complexity and gravity. 


Topic 5 of the President's report deals with trends in technology 
transfer and makes the observation that the Government maintains 
no single set of records or statistics reflecting the complete flow of 
technology to and from the United States. The President's report sees 
existing disparate measures of technology transfer (data on licenses, 
commodity trade, royalties, and intelligence on foreign transfers) as 
adequate for most purposes and would discourage extensive additional 
collection : 

* * * In any event, it would be neither practical nor useful to seek precise 
measures of the flow of ail relevant data and information through journals, casual 
conversation, and so forth. 

The report proposes a sharper focus by the Government on a limited 
number of highly significant technologies and a more sharply focused 
collection of data, but cautions that: 

* * * even if technical agreement is reached on what technologies are critical, 
it will remain difficult to quantify how much the effectiveness of weapons and 
other military systems of pof^siblc adversaries \vould be enhanced if such tech- 
nologies were transferred. 

These comments on the data base and measurement of technology 
transfer arc among the most complete in the report. This is one of the 
few discussions that i)rovides much factual (hita, albeit hmitod. One 
notable omission is lack of comment on the results of recent studies 
on international technology fiows sponsored by the National Science 
Foundation. A discussion of those studies might beneficially have been 
included in the report. 


Also the discussion of exports of military tcchnolo^ by the United 
States, and other industrial countries, inchiding the Soviet Union is 
minimal. The report could usefully provide some statistical data on 
trends and discuss the past effects of military technology transfer on 
the stability of various regions. 

Concerning international cooperation in the control of nuclear en- 
ergy, the report notes the role of the Nuclear Suppliers Group whose 
major effort has been to develop guidelines for the transfer of nuclear 
technology. These are briefly summarized in the report but are not 
discussed nor compared with the United States own policies for 
transfer of nuclear technology. The report notes that these voluntary 
controls raise the difficulty and cost of a would-be proliferation of a 
significant nuclear weapons program. It notes too, without detail, that 
there have been major disagreements between the United States and 
other nuclear suppliers in the past, but states, ''At present, the general 
harmonization of policies is considered satisfactory." The President's 
report does not mention the U.S. problems with France and West 
Germany in their controversial arrangements to export sensitive nu- 
clear technology and products to Pakistan and Brazil respectively. It 
does not mention what progress has been made meeting tlie directives 
in the Nuclear Non-Proliferation Act which call on tlie President to 
negotiate with other countries to obtain binding international com- 
mitments on control of transfer of nuclear technology and nuclear 
products. It does not mention possible transfers of heavy-water- 
reactor technology by Canada nor the situation regarding nuclear 
fuels reprocessing technology. 

As for the three specific questions posed by the CRS agenda report, 
the President's report indirectly replies to one, does not discuss one, 
and mentions another in passing, without detail. (See table II.) 

Table II. — Coverage by the President's report of questions on nuclear technology 
posed in topic 5, issue 7, of the CRS report concerning trends in technology transfer 

CRS Question President's report coverage 

(1) The extent to which other sup- Indirectly discussed in connection with 
pher states control nuclear technol- information on the nuclear suppliers 
ogy exports to prevent proliferation. group. 

(2) Instances of other supplier poll- Not discussed other than in general re- 
cies or actions at variance with U.S. marks about some major disagree- 
nonproliferation aims. ments in the past. 

(3) Efforts to harmonize nuclear export Mention of nuclear suppliers group, with 
pohcies. no details. 


Much of the discussion in topic 6 is clearly expressed and straight- 
forward, though some important issues are treated with little detail. 
There appear to be deficiencies in the report's response to individual 

In raising the question of limiting technology transfer for politically 
competitive reasons, the report makes explicit the linkage of tech- 
nology exports to political relations with individual countries. However, 
linkage is not pursued, although it is a timely subject that deserves 
more attention. 

The report suggests that only mature, standardized technologies 
have been transferred abroad, and that such technology transfer 
should have no adverse effect on U.S. employment ''unless U.S. firms 


begin to license, sell or otherwise transfer recently developed tech- 
niques * * *." There is some evidence not cited in the report that 
U.S. firms have begun to export advanced technologies.^ 

The report's paragraph on the U.S. Export-Import Bank is general 
and sometimes confusing. Eximbank finances the export of over 20 per- 
cent of all U.S. capital goods (the most technology-intensive exports). 
The Bank's importance in U.S. technology exports suggests that it 
deserves much more attention. 

The authors assert that it is not appropriate to characterize the 
Bank's progi'ams as ^'incentives" to transfer technology abroad. Since 
the Bank provides financing at better terms than exist in the private 
financial market, the characterization seems entirely appropriate. The 
authors also cite a Treasury Department study which concluded that 
''in the Bank's direct loan program, in 64 percent of the cases, the 
export would not have taken place without the loan." If the Bank 
does not provide incentives to export, why would 64 percent of Exim- 
bank-assisted exports not have taken place without the Bank's par- 
ticipation? It is not clear w^hat meaning is assigned by the authors to 
the word "incentives." 

The statement on the use of effective (active) mechanisms for trans- 
ferring technology to the Soviet Union appears to miss the mark. The 
issue has been not whether the U.S. Government should promote the 
use of active mechanisms in United States-Soviet commercial relations, 
but whether such mechanisms should be more tightly controlled. The 
latter approach was recommended by the Defense Science Board 
report on the export of U.S. technology. 

Topic 6 of the President's report judges present technology export 
controls to be reasonably effective for controlling the outflow of mili- 
tarily significant technologies, noting that there have been some known 
but infrequent violations of the export control system. "Moreover, 
export controls have not prevented clandestine efforts to acquire 
technology." Unilateral U.S. export controls, also, have not precluded 
possible adversaries from acquiring significant military technology 
from other sources. 

Export controls, the report emphasizes, are not a substitute for 
continuing technological advances by the United States and its allies 
to provide a sustained qualitative edge over possible adversaries. 
Export controls may be increased in effectiveness by focusing them 
more sharply on a limited number of highly significant critical tech- 
nologies. This, says the report, is being examined, but the report does 
not say who is making the examination, when it will be completed, or 
whether or not its results will be reported to Congress. 

The application of tighter controls on U.S. exports to Western 
coilntries is rejected by the report on the grounds that it would involve 
a "disproportionately high ])olitical cost in terms of weakening our 
alliance relationships and would therefore adversely affect our security 
interests." The imiformity of this policy, however, is open to question 
in the light of the unilateral tightening of U.S. export controls for 
nuclear technology and ])ro(lucts. 

The President's report deals with controls for the export of nuclear 
weapons technology, in four lines: 

" ^o(^ .Tnpk Unrnnson, "Intornationnl Transfer of Industrial Technology by U.S. Firms 
and tlif'lr Implications for the U.S. Economy." prepared for the U.S. Department of Labor. 
IJureuu of International Labor AflTairs, December 197(). 


111 general, it is believed that controls on nuclear weapons technology as such 
are quite effective at the present time. This is in part because of the security classi- 
fication imposed on weapons technology. 

One feature of the Nuclear Non-Proliferation Act is title V, which 
provides for U.S. initiatives to help developing countries find non- 
nuclear energy sources, largely through a substantial technology 
transfer effort. The President's report is silent on this directive. 


In response to the seventh issue raised by section 24 of the Inter- 
national Security Assistance Act of 1977, the Presidential study pro- 
vided an abbreviated description of executive branch organizational 
arrangements for regulating U.S. technology exports but does not 
provide an analysis of their effectiveness. 

No analysis is given of the effectiveness of the leadership of the 
Departments of Commerce and State, the bureaus of those Depart- 
ments, or any interdepartmental groups in conducting reviews of U.S. 
and COCOM cases involving dual-use technologies of strategic sig- 
nificance. Neither does the study assess the effectiveness of the Arms 
Export Control Board in coordinating interagency consideration of 
major cases of military technology transfers or the effectiveness of 
departmental participation in this process. Also the study does not 
describe the circumstances under which the ad hoc National Security 
Council technology transfer group was established ''to coordinate 
implementation of planned improvements in the export control sys- 
tem,'' or in what ways the modified system will be more effective or 
efficient than previous systems. 

The study asserts with no support that U.S. intelligence ''has been 
successful in identifying significant cases of misuse" of critical U.S. 
technology. But without further information, it is not clear whether 
this judgment is best considered an indication of an effective intelli- 
gence organization or ineffective laws, controlling regulations, and 
organizational arrangements. 

This section also states that the international COCOM arrange- 
ment for coordinating controls on exports to Communist countries 
"has been reasonably effective," and adds, "In any event, there is no 
realistic alternative course of action." No explanation is given re- 
garding the organization's implied shortcomings or the reasons why 
other alternatives (for example, a system of sanctions against COCOM 
members that violate the group's rules) are not realistic. The report 
observes that unilateral controls on technology, including exports of 
advanced products, Vv^ould be largely ineffective. 

The report does not discuss the issues raised in title V of the Foreign 
Relations Authorization Act of 1978 which gives the State Depart- 
ment new coordinating and reporting responsibilities concerning 
science and technology arrangements and activities between the 
United States and foreign countries, international organizations, or 
commissions. In passing these legislative provisions. Congress in- 
dicated its dissatisfaction with Executive arrangements for the appli- 
cation of science and technology to U.S. foreign policy. 


In discussing the U.S. Government's role toward developing coun- 
tries, the President's report notes under the previous topic (p. 25 above) 
that since the point 4 progTam, the United States has provided tech- 
nical assistance and that a planning office recenth' was established 
to outline operations for a new Foundation for International Tech- 
nological Cooperation to be established in 1979. 


In response to the legislative requirement for examining the 
adequacy of existing legislation and regulations governing U.S. 
technology exports, the Presidential report stated : 

Existing legislation and regulations provide an adequate basis for the identifi- 
cation of strategic technology to insure that national security implications are 
properly considered by the Government. 

The Arms Export Control Act, Atomic Energy Act, Nuclear Non-Proliferation 
Act, Mutual Defense Assistance Control Act, and Export Administration Act 
provide an adequate legislative basis for necessary controls. 

This legislative authority has been translated into effective regulations which 
are reviewed and modified periodically, particularly as they rtlate to adding and 
deleting specific items from control. 

The administration takes the position that neither the categories 
of military equipment included on the munitions list nor the arms 
export control process lend themselves to differing degrees of control. 
And the report says that further classification of the items according 
to terms such as lethal or nonlethal, sophisticated or simple, obsolete 
or modem, or offensive or defensive, would imply various degrees of 

The study does not evaluate the adequacy of existing legislation 
and regulations that tend to create variations in the degrees of control 
applied to munitions list items by classifying them into groups such 
as significant combat equipment, major defense articles or services 
selling for $25 million or more, and major defense equipment selling 
for $7 million or more. Variations in the export control process reflect 
these differentiations, as do differences among requesting countries 
(category A and category B request review procedures have been 
established to provide varying treatment of requests). 

The report questions the desirability of one central point of control 
for technology exports, saying: 

* * * There is no way of imposing a rigid single point of view on all interested 
agencies through a detailed policy statement, and it would be undesirable to 
attempt to do so. Diversity of viewpoint is not evidence of hick of coordination. 
Indeed, such diversity is essential to achievement of a proper balance of all relevant 
factors. 8 

While the report speaks of the value of an active diversity of view- 
points among the various executive branch departments, it does not 
provide the impression of a widely based evaluation of U.S. technology 
transfer poHcy as set forth in legislation. At this point in American 
history \\'hen many questions are being raised about the effectiveness 
of U.S. technology })olicy, the role of the Government in science and 
technology, and the role of science and technolog}^ in American diplo- 
macy and security programs, it can be argued that the administration's 
discussion of their issues is not adequate. 

• Report, p. 40. 



Section 9 deals with international a(2:rcements for te(:hnolo<2:y trans- 
fers. Here the President's report hints at the need for some additional 
controls : 

In the case of dual-use items and technologies with extensive civil applications, 
controls may be desirable for items and technologies having particular military 
applications. However, the case for unilateral national action is weak. Most 
technology is so widely diffused in the industrialized countries that unilateral 
controls would be ineffective. * * * In the absence of international agreement on 
export controls, the question is raised as to why our exjiorters should be denied 
profitable sales opportunities not denied to their competitors in other countries.^ 

The report also addresses international arrang-ements for control of 
nuclear transfers. Here it notes the roles of the IAEA, the Limited 
Test Ban Treaty, the Non-Proliferation Treaty and the Treaty of 
Tlatelolco (Latin American Nuclear Free Zone), but gives no details. 
It also mentions again the Nuclear Suppliers Group agreement, the 
ongoing International Nuclear Fuel Cycle Evaluation and negotia- 
tions for a comprehensive nuclear test ban treaty. No evaluation 
appears for any of these. The report only says that development of 
international arrangements has continued over the last 2 ^^ears 
and that the administration expects this evolutionary process to 
continue. It does not mention the directives to the President in the 
Nuclear Non-Proliferation Act to negotiate with other countries to 
obtain binding agreements on conditions for nuclear exports. 

The separate parts of answer 9 provide little detail of U.S. policy 
positions that would permit the Congress to judge whether existing 
policies are adequate or need to be changed. 

Certain omissions in specific responses to the legislative mandate: 

(1) As with other parts of this study, the first topic indicates that 
the author or the policymakers endorsing the report are sanguine about 
])olicies for technology transfer of arms and existing arms control 
technology. Is there room for improvement? 

(2) The material relating to the code of conduct for technology 
transfer does not appear to be sufficient to answer the questions raised 
in the CRS agenda of issues. The answer indicates that the only 
policies the Government has toward the demands being made in 
UNCTAD are negative, or something called promotion of ' 'appro- 
priate voluntary guidelines." But what are these? What is appropriate? 
Should the Government not attempt to encourage or discourage cer- 
tain behaviors on the part of the private sector in dealing with the 
developing countries? 

(3) The paucity of the material dealing with the U.N. Conference 
on Science and Technology for Development may reflect an inadequacy 
of activities in the executive in preparation for the Conference. The 
fact that the United States has no clearly enunciated policy for the 
Conference is reflected also in the apparent difficulty the administration 
has faced in writing other executive studies which set forth U.S. policy 
guidelines for the Conference and Presidential Review Memorandum 33 
dealing with the technology transfers to the LDC's. 

7 Report, p. 41. 


(4) Assessment is lacking of tlie relative importance to both science 
and foreign policy of different types of formal agreements and of 
cooperation in promoting technology flows in cases where such agree- 
ments have been reached. Important here is the comparison of the 
effectiveness of bilateral and multilateral mechanisms. This section of 
the report does not address topics identified as salient in the CRS 
document: United States-Soviet agreements and ''spy in the sky" 
technology. Although topic 4 of the President's report does discuss 
some considerations involved in United States-Soviet agreements, 
section 9 failed to answer the following questions: 

Should the United States make further science and technology exchanges con- 
tingent on the principle of joint research? Is an emphasis on exchanges of basic 
research rather than industrial applications prudent in terms of safeguarding 
national security and proprietary interests? How should exchange activities be 
financed? How should information generated by such activities be disseminated? 
How can the language barrier be overcome? How does the United States assure 
itself of a quid pro quo? Is the quality of Soviet science relative to U.S. science 
sufficient to justify joint cooperation? What benefits accrue from these 
agreements? ^ 

D. General Compliance With Legislative Requirements of 
THE Export Administration Act of 1969 as Amended (Pub- 
lic Law 91-184) and of Export Administration Amendments 
OF 1977 (Public Law 95-52) ^ 

On July 17, 1978, the Secretary of Commerce submitted a report 
entitled, ''Simplification of the Export Administration Regulations' ' 
to the Congress in response to the requirement of section 7(e) of the 
Export Administration Act of 1969 (as amended by section 114 of 
Public Law 95-52). The report was referred to the Senate Committee 
on Banking, Housing, and Urban Affairs. It will be published by the 
House Committee on International Relations as an appendix to com- 
mittee hearings on export control policy. 

On July 10, 1978, the President submitted a report entitled ''Special 
Report on Multilateral Export Controls" to the Congress in response 
to section 117 of Public Law 95-52. The report was referred to the 
Senate Committee on Banking, Housing, and Urban Affairs. 

On June 27, 1978, the Chairman of the U.S. International Trade 
Commission submitted a report entitled "Technology Transfer: A 
Review of the Economic Issues" prepared by the Departments of 
Commerce, Labor, and the International Trade Commission, to the 
Congress as a response to section 119 of Public Law 95-52. The study 
was referred to the Senate Banking, Housing, and Urban Affairs Com- 
mittee. It aj)peared in a hearing of the Subcommittee on International 
Finance on "Export Policy" (May 16, 1978). 

There are three studies relating to export control policy and tech- 
nology transfer required by the Export Administration Amendments 
of 1977 that must still be submitted: 

(1) The Secretary of Commerce is to submit a study on the 
transfer of technical data and other information to any country 
to which exports are restricted for national security purposes. 

8 Agenda, p. 20. 

» Sec Ajrcnda, pp. 22-24, for a more specific discussion of studios to be conducted, Inter- 
ft{,'enc.v reviews, and reports to Congress as recpiired by Public Law i)r)-i)2 (International 
Security Assistance Act oC li)77) and I'ubiic Law 1)5 l>2 (Export Administration Amend- 
ments of 11)77). 


The Commerce study also is supposed to review problems of the 
export by publications or any other means of public dissemination 
of technical data the export of which might prove detrimental to 
the national security or foreign policy of the United States. 
Required by section 120 of Public Law 95-52, this study is likely 
to be submitted to the Congress as part of the semiannual rej)ort 
on the Export Administration Act required by section 10 of that 

(2) The President will report to the Congress no later than 
December 31, 1978, the results of his review of U.S. export policy 
toward individual countries, as required by section 4b of the 
Export Administration Act of 1969 as amended. 

(3) The Secretary of Commerce will submit to the Congress 
a study which investigates whether the U.S. unilateral control 
or multilateral controls in which the United States participates 
should be removed, modified or added to protect the national 
security of the United States. This study required by section 118 
of Public Law 95-52 must be reported to Congress no later than 
December 31, 1978. 

These studies mandated by legislation should have been referenced and 
drawn on in the executive branch response to section 24 of the Interna- 
tional Security Assistance Act of 1977. 

E. Concluding Observations 

The issues concerning national security and military implications of 
international technology transfer are remarkably complex. A great 
deal of analytical effort would be required to conduct a comprehensive 
study of these issues, and some aspects of it would probably elude 
definitive treatment. Though difficult, such a study was deemed neces- 
sary by the Congress as a basis for proper evaluation and, perhaps, 
modification of U.S. policies and practices regarding international 
technology transfers, and was mandated by the International Security 
Assistance Act of 1977. 

The executive branch response concentrates on two of the many 
aspects of the subject: East-West technology transfers, and U.S. 
export controls covering military and related technologies. The narrow 
focus of the executive report does not allow full consideration of the 
potential advantages and disadvantages of transferring civil technology 
to allies, friends, and adversaries. Specifically, the report does not 
appear to resolve sevei-al issues raised by Committee on International 
Relations Chairm_an Clement J. Zablocki : 
— The economic and social impact of the transfer of technology on 

the recipient countries; 
— Impact on the economies of the recipient countries of restrictions 
on the transfer of dual purpose technologies (technologies with 
civilian and military applications) ; 
— Impact of the restriction on the transfer of dual-purpose tech- 
nologies on the military capabilities of potential adversaries; 
— Effect of the transfer of technology on the U.S. economy and on 

U.S. international competitiveness; and 
— Advantages and disadvantages of U.S. participation in inter- 
national scientific and technological activities. ^^ 

"Agenda, p. III. 


There is little indication in the report of broad governmental par- 
ticipation in a comprehensive study of the issue as required by the act. 

On the whole, the study gives the impression that the President and 
his administration are satisfied that transfers of U.S. technology 
abroad are adequately controlled, that such transfers do not pose 
enough of a risk to U.S. national interests to warrant going beyond 
what is now being done, and that no new legislation or congressional 
attention is needed. This optimistic assessment is substantially different 
from the congressional perception of risks and problems which led to 
the call for an executive study and report. 

As the executive report did not respond in a comprehensive manner 
to many of the questions raised by Congress and did not provide exten- 
sive analysis and criticism of existing institutions and procedures, it 
follows that Congi^ess might have to turn to methods other than re- 
quired reports with detailed guidance or to sources other than the 
executive if it wishes to obtain critical, probing analysis and a review 
of possible alternatives regarding the transfer of technology. 

It is possible that a reporting requirement with less specific questions 
might elicit a more unified and general response b}^ the executive, but 
there is little in the executive report here under review to suggest that 
its response would be of any greater analytical depth. 

Oversight hearings on the subjects mandated by section 24 of the 
International Security Assistance Act of 1977 might be targeted to 
correct omissions and provide data and insights not included in the 
report. Provided that additional information is available within 
the executive agencies and the private sector, such hearings might 
evoke some of the information and analysis required to evaluate 
current policies and procedures. 

Since man}^ trends in science and technology are documented and 
the leadtimes in the applications of technologies are sufficiently 
large, international technology transfer policies may be an area 
suitable for foresight hearings. In these hearings congressional com- 
mittees could identify important current trends and develop forecasts 
of the future. These forecasts may then be used to evaluate alternative 
policies as well as identify new areas for policy development. Such 
hearings might, for example, explore the interaction with current 
policies and regulations of the applications of new or emerging tech- 
nologies. With this orientation toward the future, the specific issues 
noted in section 24 of the International Security Assistance Act of 
1977 might be addressed. ^^ 

Finally, ongoing Presidential studies that address technology 
transfer may yield useful information on the issues that were raised 
by section 24 of the International Security Assistance Act of 1977 
but were not dealt with at length in the executive report. The results 
of those studies might be made i)ublic, or at least provided to the 
Congress when they have been completed. 

11 For background on foresight hearings, see : "Foresight In the 95th Congress — First 
Session," Renfro, William L., Cvnthla E. Huston, and Keith A. Bea. Congressional Research 
Service Report 78-18 SP. Jan. 19, 1978, 24 pp. 

3 ISys OMSSfl Tflsc) 


Congressional Research Service Contributing Staff 

Senior Specialists Division. — Ronda Bresnick, Warren Donnelly, Charles Gell- 
ner, Walter Hahn, John Hardt, and Franklin Huddle. 
Economics Division. — George Holliday. 

Foreign Affairs and National Defense Division. — Robert Shuey. 
Science Policy Research Division. — Genevieve Knezo. 
Overall Coordinators. — John Hardt and Robert Shuey.